No. 162

I ventured to telegraph to Your Grace recently a statement
that the Colony was in very considerable financial embarrassment,
and I enquired whether there was any possibility of our being
assisted by a temporary loan from the Mother Country. If not,
I had to state that I am afraid I should have to make some
considerable reductions in the staff of Public Officers.

2. I must now furnish some justification for the steps
I took. I enclose a statement of our financial position as
prepared by the Auditor. It will be seen that we shall on the
31st December next require $223,000 dollars more than we shall
possess to meet existing liabilities. This is entirely independent
of $22,000 recently funded at 12 per cent interest. Of the $223,000
dollars, $110,000 are an overdrawn account at the Bank of
British Columbia and upon this amount the Directors give us notice
that they will charge interest at the rate of 18 per cent per annum
after the 31st December 1867. $30,000 dollars will be required
to redeem Debentures falling due on the 31st Decr.

3. We shall be incapable from existing sources to pay off
this overdrawn account or to redeem these debentures. The exact
amount of Revenue that is likely to come in up to the end of the
year will be about $42,000. The first charge on this is for interest
and floating debt. This amount to $39,200 which seems likely to
leave less than $3,000 to carry on the machinery of Government
to the end of the year, and to pay past Liabilities which altogether
and irrespective of the Bank debt and debentures falling due,
amount to the sum of $85,000 so that assuming we can arrange with
the Bank for a delay in the payment of the overdraft and arrange
with the Debenture holders to renew the Debentures there is a sum of
$85,000 for past and accruing liability that we are unable to meet.

4. Nor is the prospect for next year much more encouraging.
With the Public establishments reduced as low as they can be we
shall only be able to pay our bare way without I am afraid being
able to clear off past liabilities. The heavy rate of interest is
crushing the Colony for nearly all Public works are at a stand still.
Hospitals and other valuable institutions cannot be aided, and as
they cannot be entirely supported by the small number of people in
each locality they are declining rapidly and verging upon abandonment.
Roads cannot be constructed and are barely kept in repair. Education
must be entirely neglected for 1868. It is questionable whether
we shall be able to contract for the conveyance of Mails to Cariboo,
and if we do not, the most serious dissatisfaction amongst the
miners will ensue. I believe that this state of things can only
be remedied, either by the Imperial Government lending the Colony fifty
thousand pounds (£50,000), or guaranteeing a Loan for that amount.
With the enormous attractions of California close to us I fear that
we cannot greatly increase the taxation without driving out the
remaining portion of the population.

6. But Your Grace will naturally enquire, how it is the
finances of the Colony have been allowed to reach the condition
I describe? There are many causes and I am not aware that I have
to blame myself for one of them.

7. When the Gold in Fraser's River was first discovered there
was a great rush to the Colony from California and Australia.
Between Hope and Yale where not more than half a dozen Chinamen are
now the sole workers, between 12,000 and 13,000 men were working
profitably. Sir James Douglas earnestly begged Lord Lytton to make
arrangements for the Government of a Colony which would soon
contain a population of 100,000 men. A party of Royal Engineers
was sent out and maintained at an enormous expense to the Colony
while nearly all the roads were made by contract labour hired
at from ten to fifteen shillings a day. Loans were raised in
England to pay for these works and so exuberant was Sir James
Douglas's confidence in the financial future, that two competing road
roads were made to one gold mine. The one costing one hundred and
fifty one thousand pounds (£151,000). The other one hundred and
one thousand pounds (£101,000).
The consequence was that on my assumption of the Government
I found a heavy London debt in existence. A Loan Ordinance to raise
a further £100,000 just passed and a floating local debt of
£53,000, in addition to that incurred in England, composed chiefly
of Road Bonds and an overdrawn account at the Bank of British
Columbia. That Bank shared in the general confidence, extended
its operations all over the Country and was always ready to come
to the assistance of the Government. Shortly afterwards came an
Indian insurrection which cost the Colony £17,000 or £18,000
in its suppression. Then the Imperial Treasury made us pay
£10,700 for the, to us, useless huts the Engineers had erected
on the Banks of the Fraser. In 1866 a considerable expense was
incurred in opening a Road to the Big Bend of the Columbia, where
it was alleged rich mines had been discovered, and large sums
were spent in 1865 in opening the communications in Cariboo. Yet
had not Union, as I shall presently show, taken place the Mainland
would this year be able to pay its way. Vancouver Island went
recklessly to work and £35,000 were spent on a dredging machine
which I believe has never raised five tons of sand from the bottom
of Victoria Harbour and things went faster still when there seemed a
probability of the annexation of the Island to British Columbia and
the shifting of the payment of the Debts that might be incurred on
other shoulders. £10,000 were voted for the erection of a
Government House which had always been refused in the more prosperous
times of the Colony, and Steamers were induced to visit Victoria at
a large promise of payment which the Victoria politicians well knew
that if ever fulfilled at all—must be so at the expense of
the Mainland.

8. I returned to the Colony at the end of 1866 and found the
last fraction of the £100,000 Loan of 1864 spent, heavy Vancouver
Island debts to pay and hardly a prospect of meeting our liabilities
at the end of this year. When it became known by telegraph in Victoria
that Union was about to take place, every effort was made to fill
the stores with dutiable articles while the Port was still free,
which it was anticipated would have to be admitted free on the
Mainland on Union being consummated. I am informed by the Collector
of Customs that when Union was proclaimed there was over a million
dollars worth of spirits, wines and Tobacco in the stores of Victoria.
Thus at the time when compensation had to be awarded to many public
Servants who lost office and other extraordinary expenses took place,
our principal source of revenue the custom duties broke down. The
Real Estate Tax of Vancouver Island which was never paid regularly
would simply, if we endeavored to maintain it have accelerated the
tide of emigration which was flowing from Victoria.

10. I certainly cannot charge myself with extravagance.
I refused a vote of £10,000 for the erection of Public buildings
at New Westminster. I have never appointed a higher Officer than
a Constable during my term of office and many are the families
I have reduced to destitution by successive reductions in the Public
expenditure. My own salary is nine months in arrear.

10. But it should be stated how I propose to repay a Loan if
contracted. I reply that I should at once pay off the debt to the
Bank on which we are paying 12 per cent to be increased to 18 per
cent. I should purchase all our 12 per cent debentures which are
offered in vain at San Francisco now at 65. The saving, alone in
interest, would pay nearly the whole of the Civil List. I should
continue to reduce the Public Establishments as opportunity might
allow. And as the supply of goods which have not paid duty in
Victoria is not inexhaustable we must look forward to a considerable
increase in revenue within a few months. Then the 4,000 or 5,000
people of Victoria instead of depriving the Mainland of its revenue
must add to it the duties of their own consumption.

11. Should no assistance be afforded us to tide over the
present emergency, I fear I shall have to reduce the Civil
Establishments so low as to leave me, under present instructions,
without an Executive Council. The Office of Treasurer has already
been abolished, others must follow.