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The interest on the bonds reported above is the yield of securities held in trust for the State School Fund, consisting of bonds of the State of California, amounting to $1,737,500, together with bonds of different counties of this State, aggregating $251,900, and described as follows:

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State Capitol Bonds of 1870--seven per cent.
State Capitol Bonds of 1872—seven per cent.

State Funded Debt Bonds, 1873—six per cent. poll

Humboldt County Bonds-nine per cent.

Mendocino County Bonds-eight per cent.
ands Napa County Bonds-seven per cent.
ional Sacramento County Bonds-six per cent.

Ban Luis Obispo County Bonds-ten per cent.
San Luis Obispo County Bonds-eight per cent.

Santa Barbara County Bonds—ten per cent. i the Solano County Bonds-seven per cent

Stanislaus County Bonds--eight per cent.

Tehama County Bonds—eight per cent. Con- Tulare County Bonds-ten per cent.. tend

onds

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1,457 62

2,469 86

4,964 77 8,816 30

03

7,922

The revenue of the School Land Fund is governed by the provis5,090* ions of Section 4, Article IX, of the State Constitution, which reads as 3,366 68 follows: "The proceeds of all lands that have been or may be granted

by the United States to this State for the support of common schools, 2,012which may be or may have been sold or disposed of, and the 500,000

acres granted to the new States under an Act of Congress approved A. D. 1841, shall be and remain a perpetual fund, the interest of

which shall be in violably appropriated to the support of common 2,012 * schools throughout the State.

In order that this provision of the Constitution shall be carried

out, it is made the duty of the State Board of Examiners, by the 8,861 6 requirements of Section 680 of the Political Code, and the Act of the

Legislature approved February 2, 1872, whenever and as often as there is in the State treasury the sum of $10,000 as proceeds of the sale of State school lands, to invest the same in bonds of this state, bonds of the United States, or in the bonds of the several counties of

The provisions of the section of the Code referred to limit the

Board fo investments in bonds of this State and of the United 18,998* | thereof

. Precedent to the purchasing, the Board is required to 3,579 % States at the lowest price at which they may be offered by the holder

advertise for a period of thirty days for sealed proposals offering such bonds for sale. With the view of investing the money that had

2,576 96

9,237

this State.

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1,458 31

32,576

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SE BE K F SE

accumulated in this fund, the Board at different times during the past two years advertised for bonds. As our State bonds are prac tically out of the market, none were offered, and the price put upon bonds of the United States being invariably above the ruling rate

, А the Board was prevented from purchasing. The Act of 1872 was passed for the purpose of giving the Board

b authority to make investments in bonds of the several counties of this State.

Under the provisions of the Act, whenever the Board desired to purchase this class of bonds it was not required to advertise for proposals, but it could go into the market for them, with the restriction, however, that not more than the par value should be paid.

Formerly no difficulty was experienced in making investments from this fund, as is attested by the large amount of bonds, viz., $1,989,400, at this time held in trust. Now, owing to the fact that the several counties have attained such a healthy financial condition that county bonds cannot be obtained within the par limit, and by reason of the embarrassment, in being required to advertise for the other classes of bonds, the Board has been unable to make any investments, and, as a consequence, the fund has accumulated-having at this time to its credit the sum of $198,648 69, which, with the further sum of $98,387 04, temporarily loaned to the General Fund, makes a total of $297,035 73, which should be at interest for the benefit of our public schools.

I doubt whether, hereafter, under the restriction of not bidding more than par for county bonds, the State will be able to purchase any of this class of bonds for the School Fund. The laws under which these bonds were issued, generally authorized the bonds to bear interest at from seven to ten per cent, and at that rate all of the desirable bonds are held in the market at a large premium. In time to come, some of these counties will refund their bonded indebtedness at a lower rate of interest, when, if the Board of Examiners is permitted to become a bidder, such bonds could be purchased at part

Another reflection suggests itself, that in any future legislation authorizing a county to issue bonds, the State Board of Examiners

R may be made a preferred purchaser, at a stated rate of interest.

I have no doubt that the Board could go into the open market and purchase bonds at a less premium than it has to pay under the ti present system of advertising for them. Indeed, I am informed by à former clerk of the State Board of Examiners, that on one occasion a certain amount of bonds was once offered for sale in the open market at so much less premium than the Board was forced to pay for the same class of bonds, that the difference was nearly one per cent interest in favor of the open market.

I therefore recommend that all restrictions be removed, save that which prohibits the Board from investing in the bonds of any county, the debt of which at the time exceeds fifteen per cent of the assessed value of the taxable property of said county, and that the Board be authorized to purchase whenever and wherever it can do best for the School Fund, or that the State shall give her obligation for the amount in the School Land Fund, and become the debtor at a low rate of interest, say four per cent per annum.

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UNIVERSITY FUND.

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The amount of bonds now on deposit in the State treasury, under te , Act of March 19, 1878, creating the Consolidated Perpetual Endow

ment Fund” of the University of California, is $1,330,000. The rd bonds are described as follows:

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State Capitol Bonds of 1872

$135,000 00
State Bonds of 1873 (funded debt)

7 per cent. 817,500 00

6
рег

cent.
San Francisco City and County Bonds of 1858 (funded debt)- 24,000 00
San Francisco City and County Bonds of 1863-

6 per cent. its

20,000 00 San Francisco Park and Avenue Improvement Bonds of 1873.

7 per cent. 50,000 00

6

per cent. San Francisco Montgomery Avenue Bonds of 1873

22,000 00 he San Francisco Park and Avenue Improvement Bonds of 1874.) 1,000 00

6 San Francisco School Bonds of July 1, 1874. on

30,000 00

6
per

cent. San Francisco City Hall Construction Bonds of July 1, 1874..

5,000 00

6 by San Francisco Dupont Street Bonds of 1877-

40,000 00

7
per

cent. he Santa Clara County Bonds of 1877

3,000 00

7 per cent. Santa Clara County Western Pacific Railroad Subscription ny Bonds of 1865

10,000 00 LV- Oakland Sewer Bonds of 1875

13,000 00 he Alameda School Bonds of 1878

10,000 00 San Luis Obispo County Bonds of 1870

8,000 00 San Luis Obispo County Bonds of 1872

10 per cent. he

11,000 00 10 per cent. Kern County Bonds of 1880

35,000 00 Fresno County Bonds of 1878.

7 per cent. 12,500 00

77

per cent. San Joaquin County Bonds.. ng

20,000 00

8

per cent. Sonoma County Bonds of 1881.

41,000 00 se Plumas County Bonds of 1881.

6 per cent.

12,000 00 ler Merced County Bonds of 1874.

6 per cent.

10,000 00 10 per cent. to

Total.. he

$1,330,000 00 me ed

The interest upon bonds on deposit in the State treasury to the

credit of the Consolidated Perpetual Endowment Fund, for the ar thirty-second fiscal year, amounted to $74,913 79, and for the thirty

third fiscal year to $78,150 15, which was, by order of the Board of ers Regents, paid to the Treasurer of the University for its support.

Warrants were also drawn upon the General Fund in pursuance of nd

appropriations made by the Legislature for purposes pertaining to jhe the University, aggregating $32,944 59, for the thirty-second fiscal by year

, and $25,785 for the thirty-third 'fiscal year, as shown by the en Jay

Thirty-Second Thirty-Third per

Fiscal Year. Fiscal Year,

IS

ca following:

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STATE DRAINAGE CONSTRUCTION AND THE CONSTRUCTION FUND OP

DRAINAGE DISTRICT NUMBER ONE FUNDS.

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1 These funds were created by the authority of an Act entitled an Act to promote drainage, approved April 23, 1880.

It was provided that for the State Fund a tax at the rate of five cents upon each $100 valuation should be levied upon all of the taxable property in the State.

For the District Fund, the same rate of tax, upon all the property in the district, with also a tax upon all mines washing earth or ores with water running into the district of one half of one cent upon 1 each miner's inch of water of each twenty-four hours run, used during the year.

The provisions of the law with reference to drawing money from the treasury in payment of liabilities incurred in prosecuting the work contemplated by the Act, were liberal in the extreme. The Board of Directors was authorized to audit and certify bills to the Controller to the extent of the estimated amount of revenue that would be realized for the funds from the tax levy of the year. It thereupon became the duty of the Controller to draw his warrants for the amounts thus certified. As the authority to allow claime was limited to an imaginary instead of a fixed sum, it required the exercise of much discretion in issuing warrants to avoid over-issuing, and thus leave some for which there would be no means of payment provided, and which at that time would have been considered as representing indebtedness of the State.

Upon receiving complete returns showing the total assessed value of property for the year, and making the deduction required by lavt in computing the tax, the probable amount that would be realized for the funds was concluded to be as follows:

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To show that my conclusions were based upon fair judgment, I again give the total amount of warrants issued, also the total amount of taxes paid into the treasury:

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In reviewing the last summary, which shows the excess of war rants over receipts to be $1,364 97, the fact must not be lost sight of that in following the provisions of the law, the warrants were issued before the revenue to meet them was paid into the treasury. Had it

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not have been for the delinquency of taxes, which was not foreseen, upon a prominent class of property, this small overdraft would not have occurred. The amount of warrants issued would have been within the limit of the amount paid into the treasury to the credit of the funds.

I have been thus explicit in detailing the transactions pertaining to these funds, for the reason that statements were publicly made charging that the Controller had issued warrants upon them largely

in excess of the revenue applicable to their payment. In the conrty

sideration of these funds, I have treated them as one, as under the

law they were both used for the same purpose. sed

Segregated, the State Fund will show a debit balance of $12,687 85, the District Fund a credit balance of $11,322 88; the difference,

$1,364 97, corresponding with the amount of excess heretofore the referred to. he

Referring again to this law, the ambiguity of its provisions caused the the question to be raised as to whether the year in which the law hat declared that the expenditures should not exceed the estimated It

revenue, was the calendar or fiscal year, the latter year commencing .nts the first of July.

The Board of Directors taking the view that the calendar year the

was meant, audited and certified bills to this office amounting to $164,503 36. Being of the opinion that the fiscal year was to govern, i declined to issue any more warrants prior to the commencement of another such year. Subsequently a case testing the constitution

ality of the law was brought before the Supreme Court of this State. lue on September 26, 1881, the Court rendered its decision, holding that law the law was invalid. The said audited bills reinain on file in this zed office, for none of which have warrants been issued.

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STATE DEBT.

:0 22 I 00 '1 00

2 22

At the date of my former report, the funded debt of the State was $3,403,000; since that time, $1,000 of the bonds of 1860, called for July 31, 1875, and $99,000 of the bonds of 1873, called September 1, 1881, have been surrendered, leaving the debt now at $3,303,000, classified as follows:

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10 06

2 16

State Funded Debt Bonds of 1857
State Funded Debt Bonds of 1860
Soldiers' Relief Bonds

State Capitol Bonds of 1870 it, I State Capitol Bonds of 1872

State Funded Debt Bonds of 1873

unt

2006 25 09

34 97

The funded debt is held as follows:
Bonds in private hands.---
Bonds held in trust for the State School Fund
Bonds held in trust for the University Fund.

$613,000 00 1,737,500 00

952,500 00

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Total

ued

$3,303,000 00

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