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presently in position to borrow considerable sums of money for urgent public works and permanent improvements, and the Government will stand a very much better chance of getting a high price for its securities if people believe that the financial condition of the country is sound, as it is.

EVIDENCE OF COMMERCIAL AND FINANCIAL ACTIVITY.

The increase in the trade with the United States in the last three years is shown by the following figures:

1909
1910
1911

**29,895,000

59,183,832
73,265,410

Instead of falling off, the importations from Europe and other countries than the United States increased the first year since the passage of the Payne Bill from #46,201,302 to 52,571,594 and the second year from P52,571,594 to 60,060,598, an increase of over $20,000,000 in two years; the internal-revenue tax of one-third of one per cent on business transactions increased the first year from #1,263,755 to 1,524,403 and the second year from 1,524,403 to #1,771,822. This shows an increase in business of #232,000,000 in two years, or, counting also exports and all trade with the United States, a total increase in both business and trade of 320,000,000. While this is by no means what it is hoped will come later, it indicates a marked improvement in trade and better times.

FINANCES.

The surplus at the beginning of the year was 3,870,458.52. In my last message I stated that I hoped to maintain a reserve of $4,000,000 more or less. I have, however, this year permitted the reserve to fall off to about $1,000,000. This has been done because the islands were in urgent need of public works and it has been found that public works could not be undertaken until plans and studies had been made and a considerable lapse of time had passed after the appropriation was made before expenditures could be made; thus we have a sum of about $6,000,000 appropriated but not yet spent. Under the provisions of Act 1902, the power is given to cancel these appropriations and return to the treasury any amount which is deemed to be necessary for the maintenance of the reserve. It thus comes about that during the present fiscal year it will be necessary to spend money only on those public works previously appropriated for and allow the reserve to accumulate or find some other way of replenishing the reserve. It is to be noted that the gross appropriations for public works payable from this year's

revenue reached the large sum of 6,227,000, which is more than has been available or could reasonably be expected to be available at the present time. The only safeguard in making the appropriation lay in the fact that most of this money could not be spent until released by the Governor-General. It is thought imperative that a large amount of the public works and permanent improvements projected, especially the continuation of the construction of roads and the building of bridges and schools in the provinces, be continued to completion. Delay would result in breaking up the organization and in the probable loss of competent and valuable men whom we might not be able to obtain at a later time.

I am glad to be able to say that, in the opinion of good judges, both here and in Washington, the gold-standard fund has now reached an amount larger than is necessary for the protection of the currency, and I have the honor to recommend that a law be passed fixing the total of the gold-standard fund at 35 per cent of the money of the Government of the Philippine Islands in circulation and available for that purpose, which would make the fund, at the present time, about #18,000,000, and authorizing the deposit of accretions in excess of such amount in the treasury as a miscellaneous receipt available for current appropriation. Fixing the sum at this amount and authorizing the deposit of the excess in the treasury would result in increasing the available cash by 2,500,000. This will enable the Government to continue work on roads, schools, buildings, bridges, ports, and irrigation, which are necessary for the interests of the people, and at the same time to maintain a proper and adequate reserve. I also recommend that a reasonable percentage of the gold-standard fund, fixed as above, be maintained in the treasury in cash, the balance being made available for the following purposes:

1. For loans to provinces and municipalities. There are a great many improvements, especially markets, for which there is an immediate need and which are most beneficial to the people and have the effect of increasing the revenues of the municipalities to a degree that enables them to repay the cost of such markets in a very few years.

2. For investment in securities and for such other uses as the funds of the Postal Savings Bank can be put to.

3. That the Governor-General be authorized to purchase bonds of companies organized by proprietors of sugar estates in provinces where there are considerable numbers of sugar haciendas, for the purpose of assisting the owners thereof in building sugar centrals, under terms and conditions which will amply secure the Government in the matter.

The following table shows the transfers made under the provisions of Act No. 1902 during the last fiscal year:

Transfers from the general fund of the Insular Treasury to appropriation accounts by direction of the Governor-General,

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The aggregate amount was #526,783.67 as compared with 427,623.55 in the fiscal year 1910. Of this amount 20,000 was transferred to the Philippine Assembly, P40,000 to the Bureau of Science for the construction of an aquarium, #175,000 to the Bureau of Agriculture for the rinderpest campaign, P25,000 to the Philippines Library for the purchase of Filipiniana, and practically all the rest for public works.

Under authority given by section 4 of Act No. 1989, the Secretaries of the various Departments have authorized the use for permanent improvements of the following sums appropriated for current expenses:

1909
1910
1911

$260,673.72

1,052,229.02

441,368.36

The estimate for the present fiscal year is as follows:

Fiscal year 1912.

RESOURCES.

Reserve:

Cash available for appropriation, June 30, 1911.

P447,332.37

Appropriated from funds of fiscal year 1911 for permanent improvements by Acts Nos. 1988, 2052, and 2058, not yet released by the Governor-General

643,000.00

P1,090,332.37

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Estimated balance provided no further amounts are released by the

Governor-General

25,406,949.55

920,039.76

As shown by the foregoing statement, the estimated Insular revenue for the fiscal year 1912 is #25,236,600. The Collector of Internal Revenue estimates that the receipts of his office during the year will be $8,900,000, an increase of about 600,000 over the receipts of last year. The Insular Collector of Customs estimates the receipts. of the Bureau of Customs at 15,500,000, which is a decrease of #1,000,000 from the actual receipts of last year. The latter estimate is conservative and the receipts, if they continue at the present rate, will exceed this amount.

The total appropriations for current expenses for the present fiscal year amount to 19,468,000, and for fixed charges $3,400,000; #1,250,000 of the fixed charges is the annual contribution of the Insular Government toward the expenses of the city of Manila. The other fixed charges are interest on bonds of the Insular Government issued for public works and permanent improvements and guaranteed interest on bonds issued by the railroads.

The total appropriations for the fiscal year 1912 for public works and permanent improvements amount to P6,227,000, all of which are to be paid out of the current revenues of the present fiscal year. The continuing appropriations for permanent improvements are #250,000 for strong-material schoolhouses, 750,000 for irrigation systems, and 500,000 for roads and bridges. Act No. 2059, which appropriated 4,354,000 for Insular permanent improvements, provided that none of the appropriations authorized therein should be available for use until released by the Governor-General. Of this amount only $670,000 has thus far been released, and the release of further amounts will be contingent on and governed by the amount of revenues received. Thus, as the matter now stands, unless further releases are made, the Government will have a surplus of 920,039.76. But in case the continuing annual appropriations for irrigation and schools are not spent this year, the surplus at the end of the year

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should be about $2,000,000. In order to give some idea of the rapidity with which public works are now being constructed, the following data, showing the expenditures during the fiscal year 1911 for permanent improvements, will be of interest:

Expended from Insular revenues...
Expended from provincial revenues.

$7,286,000

2,786,000

Expended from municipal revenues (fiscal
year ending December 31, 1910)...

844,000

10,916,000

Total

It would be most unfortunate to stop public works to this extent, and the suggested legislation releasing 2,500,000 of the gold-standard fund is urgently recommended.

The Commission, in its exclusive capacity, has passed appropriation bills for current expenses of 1,288,200, and for public works and permanent improvements

372,400.

BAGUIO.

I regret to inform the Legislature that two very heavy storms have done a great damage to the Benguet Road and that Baguio has been closed to wheel transportation for several months. It is expected to reopen the road by temporary construction and that within two years the railroad will have completed its construction to Baguio and that the advantages of the summer capital will be more easily available.

HEALTH.

Health conditions in the Archipelago during the past year have been better than ever before. There have been practically no epidemic diseases, cholera having been confined to one case in La Laguna Province, twenty-seven in Union Province, and one case in Manila. Owing to the largely increased number of inhabitants who have been vaccinated, there have been very few cases of smallpox during the year and nearly all in an extremely mild form.

I am glad to be able to inform the Legislature that the General Hospital is now fully opened in successful operation and giving general satisfaction. I believe Manila can congratulate itself in having the best arranged and best equipped hospital in the Orient.

The Southern Islands Hospital will soon be ready for occupancy and it is expected to bring to the Southern Islands the advantages which have so far been confined to those who are able to attend the Philippine General Hospital. The segregation of lepers has been so successfully prosecuted that the number collected each year is much reduced and the efforts of the Bureau of Health are now largely devoted to making the Culion leper colony more comfortable and beautiful.

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