No. 50 8284, CO 60/25, p. 2; received 27 August 9th July 1866 Sir,

I have had the honor to receive your despatch No. 23 of the 30th April last, transmitting Copy of a Letter from the Lords Commissioners of Her Majesty's Treasury in which their Lordshipsadvert advert in general terms to the financial condition of the Colony and desire to be furnished with a Statement of the actual Receipts and Disbursements within the year 1865 together with an account of the Liabilities of the Colony at the close of that period.

2. It is not within my province now to refer to the Road Policy of a previous administration or to question the propriety of the construction of two rival Roads through awild wild and thinly populated Country at a cost of £122,280 on the Yale-Clinton and Alexandria Road and £78,200 on the Douglas-Clinton and Alexandria Road. These expenditures have long since received the approval of Her Majesty's Government, but they have entailed upon the Revenue a heavy and in part unnecessary charge amounting to £13,500, for their maintenance and for interest on the debt incurredfor for their construction.

3. In explanation of the present financial condition of the Colony it is necessary that I should refer to a period previous to that mentioned in the Treasury Letter. At the close of the Year 1863 the entire amount of the Loans of £100,000 authorized under certain proclamations had been expended and the Public Accounts showed a debtto to the Bank of British Columbia of £8000, to the Vancouver Island Treasury of £9000, no less a sum than £14,900 of temporary Bonds, payable in one, two and three years were issued within the Year, and sums amounting to £10,000 were also due to Contractors for work performed in 1863. Thus, at the commencement of 1864 the local debts incurred in 1863, payable out of the Revenue of the following year amountedto to £32,200, a further sum of £9,700 on account of the Bonds being payable in 1865, 1866.

4. The Cariboo Waggon Road had, at that period, reached Alexandria, a distance of 120 miles from the Mining district. The Country for the greater portion of the remaining distance is thickly timbered, with little or no food for Pack animals and the necessity for the completion of the Roadwas was urgently called for in the interests of Cariboo then the only known mining Region and the main support of the Colony. In fact the £200,000 already invested in the construction of roads would have been comparatively thrown away had the roads terminated at Alexandria.

5. At the first meeting of the Legislative Council in 1864 an Ordinance was passed and received thesanction sanction of Sir James Douglas authorizing a further extension of the Public Debt by £100,000. The Council at the same time recomended the immediate expenditure of £48,000 in the completion of the Cariboo Road. Mr Seymour on his arrival in the Colony in April 1864, desirous of carrying out the pledge of a former Administration, authorized, in anticipation of the Loan, the continuance of the works, the survey ofthe the line of Road was completed and one third portion was constructed at a cost of £21,300 during the Year 1864.

6. Of the £100,000 Loan authorized in 1864—and partly expended in anticipation—it may be said the Colony received the benefit of only £60,000. The expenditure consequent on the Indian disturbances absorbed £20,000, nearly one fifth of the entire Revenue. The difficulty in disposingof of the debentures necessitated the borrowing of money at a high rate of interest. The loss of £6,000 on the sale of the debentures and the payment to the Imperial Government of £10,700 for some useless Military huts reduced the Loan to the Amount mentioned. It cannot therefore be a matter of surprise that, with the payment of the debts of 1863, the many and unforeseen expenses of 1864, and the delay in realizing the Loan, theamount amount due to the Bank of British Columbia had increased at the close of that year.

7. The detailed Returns required by the Lords of the Treasury show the expenditure of the year 1865 to have been less than the Estimate by £32,000. To estimate the Revenue at the commencement of the Year must in the present state of the Colony be a mere speculation. In the Autumn of 1864 the Kootenay Minesattracted attracted much attention and the Estimates for 1865 were framed in the expectation that a large Revenue would be raised from this District. With what justice this Estimate was made may be inferred from the fact that at the Commencement of the season the Revenue taken at Kootenay alone exceeded £1000 a week, the yield of Gold was large and every miner employed at remunerative wages. Suddenly however fresh discoveriesin in the Neighbouring Territory of Montana, the richness of which were naturally largely exaggerated by American Merchants, reduced the population at Kootenay from 2,000 to 300, and the Revenue consequently decreased. This and the impossibility of Collecting the Gold Export Tax on our Frontier are the main causes of the falling off in the Revenue as Estimated in 1865.

8. You draw my attentionto to the increase of the debt to the Bank of British Columbia at the close of 1865 as an evidence that the expenditure of the Colony had been continued throughout the year out of all proportion to the Revenue. I can only reply that in view of the expected Revenue Governor Seymour authorized important Public Works to be undertaken and that upon the receipt of information of the successful opening of the season at Kootenay, atrail trail, through British Territory, of 400 miles was commenced and completed at a cost of £11,000. All large Public Works are given out by Public Tender to contractors and it is consequently impossible to stop expenditure on such undertakings when once authorized. I give this explanation as I infer from Your despatch that I might have been expected to reduce Expenditure when I found the Revenue of 1865 mightnot not meet Mr Seymour's Estimate. This under the circumstances was impossible.

9. The Estimates for 1866 transmitted in my despatch No. 28 will have shown that I have reduced the expenditure very largely. The main items of Expenditure in 1866 on Public Works will be incurred in paying the instalments due on former contracts and in maintaining existing Roads in repair, amounting to £15,000, which of necessity must be paid.

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10. I cannot at present state whether the Revenue of the year will amount to or exceed the Estimate. I shall keep down every expenditure to the lowest limit. I have undertaken no public works but those of the most pressing necessity and this branch of Expenditure cannot be further reduced. I have made reductions in the Civil List exceeding £5000 but there are still some unnecessary Offices. On this subjectI I propose to address you in a separate despatch.

I have the honor to be, Sir, Your most obedient humble Servant Arthur N. Birch