Following is a statement of the bonded and floating indebtedness of the Territory on June 30, 1902:

Cash in hands of the treasurer available for the redemption of the above Territorial indebtedness..

Net indebtedness account of Territory.

975,972.43

119, 839.02

1,095, 811. 45

30.349.55

1,065, 461.90

A statement of county and city funded indebtedness on June 30, 1902, is as follows:

From the above statements it will be seen that the net Territorial indebtedness is $1,065,461.90.

I desire here to call attention to the transfer of $52,788.48 from the general fund to the interest fund, to be returned to the general fund when the interest fund will permit. This transfer of funds has arisen from the fact that the interest on funding bonds exchanged for Yavapai County P. and A. C. railroad bonds had to be cared for, and the failure of Yavapai County to levy a tax during the time the validity of said railroad bonds was being litigated. That litigation having ended, Yavapai County is now in process of reimbursing this sum to the Territory.

The outstanding bonded indebtedness drawing a higher rate of interest than 5 per cent could easily be funded into 50-year 5 per cent funding bonds. Still, I should hardly deem this advisable in view of the high premium offered for 20-year 5 per cent university bonds. I should judge that these bonds, when mature, could be redeemed by the sale of 50-year bonds at par, drawing a rate of interest as low as 3 per cent, or perhaps even lower. The latter method would be the business-like way of caring for these bonds should it not be advisable to pay them off at maturity.

Taxation and revenue.-Investment of money by capitalists in the development of industries in all new countries is retarded to a great extent by the high rate of taxation which comes with the establishment of public institutions and other enterprises incident to the opening of a new country to settlement, civilization, and the beneficent influences of a more modern life.

The time is now ripe, I believe, in the history of Arizona when the matter of the reduction of the rate of taxation should be taken up by the legislature of the Territory in a spirit of fairness, and ways and means devised by which the result so much to be desired may be realized.

Great wealth has for many years been taken from the mines in this Territory and distributed as dividends in other sections of the world. Assessments have been made of, and taxes levied on, the surface ground and reduction plants at these mines. This has been done, apparently, without taking into consideration the value of the individual property as a revenue producer.

I believe, in justice and fairness, that owners of producing mines in this Territory would willingly pay a tax on the output of their mines, such tax to be a just and proportionate one as compared with other Territorial taxes, and to be applied, as other income from taxes are, to the support of the government under whose jurisdiction their mining operations are conducted and from whose territory their revenues are derived. Such a tax should be made so that in no sense would it become a detriment to the development of new mines and prospects.

A tax such as this, imposed upon the output of producing mines, would add materially to the revenue of the Territory, would greatly reduce the rate of taxation, and would allay the feeling of those engaged in other pursuits than mining that they are bearing more than their share of the expense of maintaining the government under which they pursue their different vocations in an endeavor to better their condition.

I most respectfully and earnestly recommend this subject of the taxation of the product of mines to your careful consideration.

I desire to call the attention of the legislature to the fact that our liberal corporation laws have been the means of bringing about the organization in our Territory of a large number of corporations during the past several years. At least one of the States in the Union, which has not as liberal laws as our own in respect to the organization of corporations, is deriving sufficient revenue from fees collected from corporations organized within its jurisdiction to cover, or nearly so, the expense of the State government; therefore there is no reason why, with a fair and just fee charged by our Territory to the corporations which take advantage of our laws and organize in Arizona, sufficient revenue should not be derived by the Territory to assist in defraying its current expenses.

I earnestly recommend that the legislature enact a law that will require all corporations organizing under our laws to file their articles of incorporation with the Territorial auditor before they are permitted to do business, and that the auditor shall have the same recorded in the office of the secretary of the Territory; and that a reasonable fee for filing such articles with the auditor shall be established, and in addition thereto the amount necessary to cover the cost of recording such articles. I would also recommend that, whenever a corporation, by its articles, is authorized to have its office or offices outside of the Territory, the Territorial auditor shall be made the resident agent of such corporation, upon whom may be served all processes with like effect as if served upon the proper officers of the corporation within the Territory, and that, for the services of the auditor as such agent, a reasonable yearly fee shall be charged to each of such corporations; that the moneys received by the auditor for filing the articles and acting as agent shall be turned into the Territorial treasury without any expense to the Territory.

As nearly all the corporations which have been organized within the last few years in Arizona have been formed by nonresidents for the purpose of operating outside of the Territory, the burden of the expense for the organization of corporations under such a law as recommended herein would not fall upon our own people, but upon citizens of other States and Territories who avail themselves of our liberal laws to do business elsewhere.

I would further recommend that the articles of incorporation of all foreign insurance companies, which are now required to be filed with the secretary of the Territory, under title 13, chapter 4, Revised Statutes, be filed in the office of the Territorial auditor; and that a reasonable fee be charged by the auditor for filing such articles; and that the auditor be made the resident agent of the companies filing such articles, upon whom all notices and processes may be served in respect of said insurance corporations; and that a reasonable yearly fee be charged each of the corporations for the services of the auditor as their agent; and that the statements now required of such insurance companies to be filed with the secretary of the Territory be filed with the Territorial auditor; and that all the duties of the secretary to be performed in respect to said insurance corporations under the provisions of the said chapter be performed by the Territorial auditor, and the fees required to be paid in connection therewith be paid to the auditor; and that upon receipt of the same they shall be paid over into the Territorial treasury, without any expense to the Territory.

I believe it to be just and proper that the Territorial auditor, who is, in a sense, under our laws the financial and accounting officer of the Territory, should have charge of all matters concerning the collection of the revenues of the Territory as

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much under his control as possible, and he, being now a salaried officer, can perform all duties connected therewith without further expense to the Territory; the amount of the fee, as specified to be charged in each instance, to be established by legislative

enactment.

The method I have suggested above of deriving an income for the Territory from a tax upon corporations desiring to take advantage of our liberal corporation laws, same to be done without conflict with either the organic act of the Territory or what is known as the Harrison act, is not suggested as the most correct or only method, but as one of the favorable ones; at any rate, I recommend that some means be devised by which an income can be derived from corporations taking advantage of our laws, and the benefit to be derived therefrom be made to accrue to the Territory.

It might not be amiss here to call the attention of your honorable bodies to the increase, with the growth of the Territory, of business in the auditor's office, and the needed provision for care of records and documents.

I would recommend that all canceled bonds, bonds exchanged for funding bonds and other evidences of indebtedness of the various counties to the Territory be depos ited in the office of the auditor, to the end that all such records may be in one place: that proper arrangements be made for their safe-keeping, and that necessary clerical force be allowed the auditor, that proper books and records may be kept.

A complete listing of all property in the Territory subject to taxation, in conjunction with the means above outlined for an increase in the revenue, will, to my mind, secure to the Territory at a greatly reduced rate of taxation an amount necessary to cover all legitimate expenses of government and do away for all time to come with a floating debt, and in addition provide means for the redemption of our bonded indebtedness without manifest burden to the taxpayers of the Territory.

While upon the subject of taxation and revenue it will not be amiss that I suggest to the legislature the necessity of establishing some unfailing method of collecting the tax known as the poll tax, the full amount of which collection goes to the support and maintenance of the public-school system of the Territory.

Nothing can be more laudable than that proper support be given to the schools which will graduate the future citizens of Arizona, and this tax-solely for the support of our common schools-should be gladly and willingly paid by every publicspirited citizen, and special effort should be made for its collection.

In 1901 there was collected as a poll tax and turned into the school fund the sum of $46,553.64, while in 1902 there was collected as a poll tax and turned into the school fund only $23,942.51, a most notable decrease in the revenues from this source, to which your attention is most earnestly invited, remembering that this method of taxation reaches many citizens who would otherwise aid in no way in the support of the Territorial government.

There are two other recommendations I wish to make for your consideration: More in the line of economical administration, but equal in benefit to securing an increase of revenue, I most heartily recommend that the office of sheriff in the several counties and justice of the peace and constable in the several precincts of counties in the Territory be made salaried offices, and that all fees be paid into the county treasury to the credit of the general fund. These salaries can be made commensurate with the duties performed in each case, and I firmly believe that such a system inaugurated in Arizona will result in lasting good in each instance to the County treasury. Making the office of sheriff a salaried instead of a fee office will, in addition to the aid given to the county in the increased revenues, tend much toward purifying elections.

All offices in this Territory, where possible, both Territorial and county, should be made salaried, and all fees turned into the Territorial or county treasury, as the case may be.

Assessor.-Along this same line I earnestly recommend that the office of assessor in each county in the Territory be made elective instead of appointive, in order that each assessor shall be responsible to the electors of his county for the proper performance of his duty.

Division of counties into districts.-In order to further a more equitable and just administration of public affairs, the purification of elections, and a more correct representation in the house of representatives, I cordially recommend the division of counties into supervisorial districts for the election of members of the board of supervisors (a member to be elected from the district in which a vacancy is to exist ) into representative districts, in order that where a county is to be represented in the lower house of the legislature by more than one member, said members shall be elected in their respective districts; and into voting precincts, distinctly described as to boundaries, in order that the election law now upon the statute books may be properly enforced.

Judicial districts.-It has been intimated to me that the greater number of cases coming before the courts in this Territory are brought in the judicial district comprised in the border counties of the Territory, viz: Cochise, Pima, and Santa Cruz, forming the first judicial district.

If such, upon examination, is found to be a fact, I would suggest as a remedy that a redistricting take place; that the counties of Pima, Santa Cruz, and Pinal form one judicial district, and that Cochise, Graham, and Gila form another, thus dividing between the two districts in an equitable way the border sections of our Territory. The above suggestion is made in the interest of the cause of securing prompt administration of justice.

Primary election law.—I recommend that a primary election law be enacted by this legislature, and suggest that such a law should prescribe that the primaries of all political parties in the Territory desiring to place candidates in the field at any election shall be held at the same place and on the same day. The benefits to come from such a law can easily be seen.

Sale of relics of prehistoric races.-Largely in this Territory are found relics of a prehistoric race by which this section of our country was once inhabited. The greater number of these relics of great historic value have been gathered and sold in other sections of the country, until now it is almost impossible to secure a particularly representative collection of the ancient pottery and stone implements so much admired and desired by all.

I would suggest that this is an appropriate time for the Territory to make such a collection, by purchase or otherwise, for deposit and exhibition, either in the Territorial library or university. In a few years it will be impossible to make a collection of evidences of this ancient race.

Irrigation. Could the full benefit of the irrigation law known as the NewlandsHansbrough Act for the reclamation of the arid lands of the West be secured to Arizona in the immediate future, great strides would be made in this Territory in the development of the agricultural resources, and in conformity therewith all other resources will be benefited.

I took up this subject to some considerable length in my annual report to the honorable Secretary of the Interior, who has charge of the operation of the law, calling his attention to the assured success of any enterprise inaugurated within the limits of this Territory. Any effort the legislature may see fit to put forth in the endeavor to secure to Arizona the first application of this law will, I am sure, be fully recognized and appreciated.

Allowing United States Geological Survey entrance over private lands.—At the request of the honorable Secretary of the Interior I recommend the enactment of a law allowing the employees and officials of the United States Geological Survey entrance on private lands in this Territory in furtherance of Government work of interest and value to all citizens of Arizona, and I suggest the following as the proper form for such enactment:

"An act authorizing any person employed under and by virtue of an act of Congress of the United States relating to the surveys of the Geological Survey of the United States.

"For the purpose of making the surveys required of the Federal Geological Survey by acts of the United States Congress, it shall be lawful for the persons employed in making the same to enter upon the lands within the boundaries of this Territory; but this act shall not be construed as authorizing any unnecessary interference with private rights."

Pioneer Historical Society.-There is in this Territory a most worthy society known as the Pioneer Historical Society, and which I commend to you for support in its desire to preserve the historical data of early days and the early civilization of Arizona.

With the passing away of the pioneers much of historical interest will be hard or impossible to obtain, and which will as years go by become of more and more value and interest.

Now is the appropriate time to secure such material for preservation, and from which will be made a great part of the history of our Territory.

I cordially concur in the recommendations made in the report of the society submitted herewith, and to which I invite your careful attention.

Eight-hour law. In all probability at this session of the legislature the question of an eight-hour labor law will come up for consideration and discussion, and I would respectfully suggest that a fair and impartial view of the subject be taken; that consideration be given to the effect of the same upon the mining industry of the Territory as well as upon the labor interests, remembering that such laws are sometimes two-edged, and may if improperly framed or made too far-reaching in effect do damage instead of good to the interests of those for whose benefit they have been framed

and passed. A careful study of the effect of laws of similar import where found in operation in other States and Territories is cordially recommended should such matter of legislation come before your honorable bodies.

Governor's office.-With the continued and extensive growth of the Territory have grown the duties of the governor until to-day, as much is required of the governor of Arizona as of the governor of almost any other subdivision of our common country, and for which but inadequate allowance is made for clerical assistance and contingent expenses of the office by the Territory; that an entirely too small a salary— $1,500 is now allowed the private secretary to the governor. To properly perform the duties of his office the private secretary to the governor must be an expert stenographer and typewriter of the best class, an expert file as well as a trusted confidential clerk, and such men throughout the country receive a much higher salary than that allowed here; and I would therefore recommend that the salary of said private secretary be increased to the sum of $1,800 per annum, and that proper filing cases be provided for use in the office of the governor to aid the secretary in his work.

On assuming the duties of governor on July 1 last I found by act 89, laws of 1901, the governor was allowed to draw $750 for each of the years from July 1, 1901, to July 1, 1903, on his own receipt, and for which no voucher was required to be returned.

As I am a firm believer in the rule that appropriations should be made for specific purposes, and that proper vouchers should be required and returned in all cases where public funds are distributed by public officials, I have since my induction into office left this appropriation untouched in the Territorial treasury,

I firmly believe it to be a bad precedent to establish that any Territorial official shall be allowed the handling of public funds without appropriation for a distinct purpose and the return of proper vouchers therefor.

The salary of the governor of this Territory, as appropriated by the Congress, is inadequate for the services required of him; and while the organic act prohibits any legislation to increase this salary, the failure of the Congress to appropriate the full amount allowed by law works in his case a hardship.

I would respectfully request that I be allowed the services of an extra clerk or secretary; also a messenger or page during the session of this legislature, compensation in each case to be fixed by legislative enactment.

Territorial officials.-The officials of the Territory-its public servants-are performing their duties in a most satisfactory and painstaking way. Their work and responsibility have grown with the advancement of the Territory, and I bespeak from this legislature cordial support in any measures where needed for aid to these public servants in the conduct of public offices.

The auditor.-From the report of the auditor submitted herewith can be judged the amount of work connected with this office, and which becomes greater as the business of the Territory grows.

I recommend that proper clerical assistance be allowed the auditor as the duties of his office increase.

The treasurer.-Equally also with the expansion of Territorial enterprises does the labor and responsibilities of the treasurer's office expand, and for which responsibility and labor a lamentably small salary is now allowed by law. Some years ago the treasurer was allowed the fees collected from foreign insurance companies doing business in this Territory, and which, in conjunction with the salary of $1,000 allowed by statute, would be something nearly commensurate with the duties and responsibilities of the office. Later, by legislative enactment, the duties of insurance commissioner, and the fees connected therewith, were taken from the treasurer, transferred and made a part of the duties and fees of the office of secretary of the Territory.

In line with a recommendation previously made in this message, that such insurance business be transacted by the Territorial auditor and the fees received from such insurance companies turned into the Territorial treasury, I now take pleasure in recommending that a proper and equitable salary be paid the treasurer.

While discussing this subject I desire to call the attention of the legislature to the fact that there can be required of the Territorial treasurer a bond in the sum of $40,000 only; whereas there are at times in the treasury of the Territory a sum far in excess of this amount.

As a matter of fact, and under the provisions of the statutes, the funds of the Territorial treasury have been deposited in several separate banks in the Territory for safe-keeping, a bond being furnished the treasurer from each bank so selected in excess of the Territorial funds deposited therein.

I consistently believe the present to be the proper time for a correction of the fee system, now to some extent in vogue in the Territory, and a readjustment of the salaries paid Territorial officials.