Oregon Historical Quarterly/Volume 10/The Financial History of the State of Oregon

by F. G. Young

THE FINANCIAL HISTORY OF THE STATE OF OREGON^[1]

Acknowledgment is made of assistance received from the Carnegie Institution of Washington in preparation of this study.

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PART ONE.

CHAPTER I.

Introduction.

On the first Monday in June, 1857, the people of Oregon Territory by a vote of nearly five to one decided to have a constitutional convention. Congress had passed no enabling act but this Oregon community of some 45,000 people, in the far-outlying and then isolated Pacific Northwest, had at divers times been under the necessity of acting independently and without express leave granted at Washington. The people of this territory had shown considerable facility in community achievement of a political character and some disposition to have their own way^[2]. Congress, on the other hand, was at this time embroiled with the issue of the restriction or extension of slave territory and had its hands pretty well tied when it came to the task of passing enabling acts.

On this matter, however, of moving for admission as a state the people of Oregon had never manifested any enthusi- asm. The politicians among them had not failed to start the agitation of the question at the earliest possible moment and to keep persistently at it. The question of the formation of a state government was brought up in the first session of the legislative assembly of the territory in 1849. The subject was discussed at each succeeding session thereafter and in 1854 the promoters of the movement succeeded in getting the proposition submitted to a vote of the people. Then a vote was had regularly each year until a majority in favor of a convention was secured in 1857.^[3]

The Anticipated Financial Burden of the Support of a State Government the Main. Cause of the Reluctance of the People to Support the Movement for the Formation of a Constitution.

Under the provisional government of the forties the older settlers had had sufficient experience in supporting the machinery of a commonwealth government to serve as a basis for suggesting to them the additional burdens involved in the exchange of the territorial for a state government. Under their territorial government they were receiving some $32,000 a year for the salaries of their officials. Special appropriations for public buildings and the territorial library made the average annual receipts of funds from Washington nearly double this sum.^[4] The flow of this stream of wealth to Oregon would be arrested as soon as they passed out of the status of a territory into that of a commonwealth, and another volvolume of funds — one of ever growing proportions — must then originate from their own pockets. They alone would be responsible; for the pay of their state officials and the maintenances of their state institutions.

The desires and activities of the few who aspired to official position were clearly back of the sustained movement for statehood, while the evident reluctance of the people tO! assume the financial burdens involved in the support of the machinery of a state government is as evident in their repeated rejec- tions of the proposal to hold a constitutional convention. However, after eight years of virtually continuous agitation and three refusals to take the initial step towards statehood, the people yielded to the importunities of the politicians.^[5]

There, too, were compensations to be hoped for under statehood. With administrative and judicial officers of their own choosing their common purposes might be more readily realized. But a more substantial interest in statehood had just been created through the accumulation of claims to the extent of some two millions they had against the national government because of services and supplies furnished in carrying on the Indian war of 1855-6. A full state delegation of three members at Washington in place of one territorial delegate could naturally be more effective in securing the recognition of this claim as well as avail for securing the benefit of the regular internal improvement land grants as also additional grants to stimulate railway building, such as the states of the Mississippi valley were at this time receiving.

It can hardly be said that the Oregon people in pushing towards statehood evinced a clearly defined purpose which they proposed to realize through this more independent organization. The natural desire for the larger degree of autonomy it would secure was reason enough of course. Aside from that the proposed transition had suggestions of a trade in it: The easy conditions but narrow outlook of a territorial status were exchanged for some immediately expected substantial perquisites of statehood — the heavier taxes to follow were yet below the horizon.

The Oregon community that thus resolved for a consti- tutional convention lived comfortably, if frugally, on the returns from agriculture and grazing. Their few outlying mining camps and the great mining center in the neighboring state of California, with which they had extensive and profitable trade relations, supplied them with a fair market and an abundant medium of exchange. Still the conditions among a handful of people so isolated from the rest of the world were necessarily primitive. Development through immigration would be slow. Profitable commerce would be restricted to a few staples. Under these circumstances wisdom would suggest utmost simplicity in political organization, the closest restriction of the scope of governmental activities and the limitation of expenditure in any direction to very modest sums.

Furthermore, the exodus to Oregon from the then young states of the Mississippi valley had followed close on the disastrous venture of those states in public canal and railway building. That set-back for these states had in a measure been the cause impelling the more restless spirits to move on across

the plains. Many before leaving for the Pacific slope had no doubt at one time or another been touched by the evils attending the use of state and private banks of issue when those evils were most unchecked. In their new home even they had experienced a cycle of prosperity and stagnation. They were thus fully sobered. There was little in prospect to stimulate them to discount the future. The future was secure enough but it would be slow. We must expect them in framing and adopting a constitution to exhibit the full force of the reaction against the assumption by the state of the work of providing internal improvements and conducting state banking institutions. Even the power accorded the legislature over their purse strings would be carefully guarded.

CHAPTER II.

Finances in the Constitutional Convention — Attitude AND Ideas Expressed in the Debates on Financial Matters.

The constitutional convention was composed of representa- tive men of the territory. It was efficiently officered, de- veloped no serious factional spirit and maintained a deliber- ative procedure throughout its sessions so that its discussions and the document it submitted to the people for their ratifi- cation may be taken as fairly reflecting the public will on matters financial.

The regulation of the finances of the future state figured in the discussions of the convention in a decidedly one-sided way. There was at all times the keenest anticipation of the burden involved in supporting the proposed commonwealth organization, with but little or no realization of the possibility of lightening this load either by better adjustment in improved systems of taxation and treasury administration, or by increasing the financial strength to carry the load that the right use of a state organization might afford.

The regular list of standing committees of the convention contained none on Finance. The convention seemed "to fight shy" of the subject as a wholly unpleasant one, and it was quite oblivious of the resources in rightly ordered financial arrangements. No committee on finance was provided for until more than three-fourths of the term of the convention had expired. This committee on finance reported its article within three days after its membership had been announced. Its report elicited no discussion and was adopted without even having been taken up in the committee of the whole.^[6] There were provisions pertaining to finance incorporated in other articles of the constitution, notably in that containing the bill of rights and in one on corporations and internal im- provements. All these taken together determined the nature of the financial system the state must of necessity develop. The general character of that system will be sketched presently.

The records of the deliberations of the convention clearly indicate that a consciousness of the necessity of closest econ- omy was present in the minds of the great majority to a degree as to make it of the nature of an obsession. The sup- port of a political establishment comprising all the features of an American state by less than fifty thousand widely scattered people was a pretentious undertaking. The disposition to simplify for economy's sake, to consolidate offices that older states had kept distinct and that should be so held, to reduce salaries to a minimum, so dominated the attitude taken by the great majority on every proposition as to draw from the president of the convention about the middle of its work the following querulous remark:

"Every question which comes up here is first discussed on the ground of its expense — as though a government could be devised without expense."

The suggested consolidations of offices seriously considered by the convention included the making of the governor also the treasurer, and the county judge also county treasurer. Some would have limited the county board to the county judge and others urged the elimination of the grand jury through the substitution of examinations before a magistrate for pre- sentment by grand jury. Among the consolidations effected were the making of the governor superintendent of public instruction, the circuit judges justices of the supreme court and the county clerk also clerk of the circuit court.

Other manifestations of this ever present consciousness of the necessity of the strictest limitation of the cost of the pro- posed state government are seen in the recurrent and pro- tracted discussions of the salary schedule. It went without saying that there should be a hard and fast constitutional limitation of all salaries. To the legislature was entrusted the naming of the salaries only of the county officials and of those connected with offices that might later be created.^[7]

The concern for keeping the burden of the support of the state government light is evident in the proposal to definitely defer the time before which the erection of a state house should not begin. The date for the utilization of the University fund was placed ten years in the future. The proposal to divert this fund to common school purposes and thus avoid the line of public expenditure for higher education had strong championship. Participation in activities for internal improvement either by the state or local governments was rigidly denied and the use of public credit by either the state or local governments was closely limited. The employment of a convention stenographer to keep an official record of the debates was dispensed with on account of the expense it would have involved. The "pay as you go" and "hard cash" rule of business practice was enjoined in the prohibition of all banking activities for the circulation of instruments of credit. The strongest consideration with them against the unlimited liability of stockholders in corporations was the fear that such discouragement of corporate enterprise would lead in the end as it had in Missouri and other states to an irresistible demand to guarantee the loans of transportation companies by the state and local governments.

The spirit of the convention as evidenced by its discussions as well as by the document submitted to the people was entirely of the safe and sane order. It was profiting from the disastrous experience of the states of the Middle West during the generation preceding in their state canal and railway building and wildcat banking excesses. There was a strong sition to limit the debt contracting power of municipalities even to an amount equal to their revenue for one year. It was recognized, however, that they must normally have recourse to credit in the construction of public works and so the "pay as you go" maxim was departed from with reference to them to the extent of requiring legislatures in granting municipal charters to restrict their powers of taxation and of contracting debts. There was only one suggestion to make an exception to the policy of withholding state credit from enterprises for internal improvement and that was a proposal to aid a railway connecting Oregon with California. It was summarily rejected.

CHAPTER III.

Salient Features of Oregon's System of Finance as Conditioned by the Financial Provisions of her State Constitution and by the Spirit with which These Have Been Used.

The temper of the constitutional convention was for closely restricting the power of the legislature in financial matters. There was little or no apprehension of the danger in this rigid prescription. Specifically, fixed salaries, absolute limitations of the use of credit except for public defense, and rigidly determined methods of taxation were among the financial features embodied in the constitution.

The members of the convention were clear on what not to do and on what not to have in a financial system ; but the absence of all discussion of financial topics, except those of the salaries and of the use of public credit, seems to indicate a pretty complete lack of constructive ideas pertaining to finance. Nevertheless, with the starting of the machinery of state government taxation and public expenditure must begin. To live the state government had to have support. Some financial system had to be evolved having conformity to the constitutional restrictions. And as the financial provisions of the constitution were retained unchanged for nearly fifty years it is worth while to get in mind the salient features of the system these determined.^[8]

The phraseology though specific of this enduring constitution does not, however, alone suifice as the cue for ascertaining the characteristics of Oregon's financial system. The genius of the people needs also to be taken into account as it exhibits itself in progressive legislative enactment, in trative devices and in the decisions of her supreme court as they do or do not yield in their constructions to the changing demands of social welfare. The financial methods and activities of Oregon have for half a century thus had their development within a restraining mold constituted by an unchanged set of constitutional provisions, except as through legislative enactment elaboration may have resulted and as judicial interpretation may have here and there permitted modification.

Just how then has this constitution affected the development of Oregon's financial code and practice in some of the more vital matters?

Taxation — The constitution required "a uniform and equal rate of assessment and taxation" and "a just valuation for taxation of all property," excepting such only for municipal, educational, literary, scientific, religious or charitable pur- poses as may be specifically exempted by law. These pro- visions tied the hands of the legislature so that, aside from such systems of licensing as might be elaborated, only the gen- eral property tax was available for any and all revenues for state and local needs.^[9]

All the property of each taxing jurisdiction must under these provisions bear the levies for all the dififerent public needs in that jurisdiction. State, county, municipal, school and road taxes are imposed in a cumulative levy upon each and all of the different forms of property of each jurisdiction. The state has had distinct sources of revenue (but mainly of recent development) in the inheritance tax, insurance licenses and tax on net premiums, general corporation fees and licenses and minor miscellaneous sources. But these have sufficed to supply only a small, though increasing, fraction of its needs. The valuations made by the county assessors have thus, except during the brief period recently while an expenditure basis of apportionment of state taxes was used, determined the quotas of the respective counties in their contributions to the state treasury. The county assessor and his deputies felt the full force of the motive to relieve through low assessments his county from it fair share of the burden of state taxes.

The evils connected with the under-valuation incident to the use of the general property tax for state and local revenues Oregon has had in common with other states. A climax was reached in 1901. Then recourse was had to an expenditure basis of apportionment of state taxes. The dispensing with the valuation basis was followed with most salutary results. Approximation to a full cash value assessment was not attained immediately, nor did some counties do as well as others. After the use of a modified form of the expenditure basis of apportionment some six years its constitutionality was called into question. The language of the constitution was held to forestall the use of it.

But the worst iniquities perpetrated through taxation in Oregon must not be laid at the door of the constitution. A vain effort to avoid double taxation and to shield the debtor was long persisted in. The latter years during which the law for the exemption for indebtedness was in force witnessed most heinous procedures in tax-dodging. The language of the constitution did not impose upon the legislature the enactment of exemption laws and yet avoidance of double taxation and exemption for indebtedness were aims wholly in harmony with the constitutional injunction to tax all property at a uniform and equal rate. Both are impracticable and have led to results essentially vicious.

Because of a lack of legislative initiative the general property tax was retained in its most primitive form. Local assessment of all forms of property of general situs was the exclusive rule until but a few years asfo. In 1906 a gross earnings tax on car, express, telegraph and telephone companies was substituted for a locally assessed property tax. The legislative assembly of 1909 finally provided for a state tax commission to assess other transportation companies.

No attempt has ever been made to classify the different forms of property for the purpose of applying different rates or using a different species of tax. This was forestalled either by an implicit faith in the salutariness of the uniformity rule or a slavish deference to the letter of the constitution. An attempt to commute taxes from railway companies, for services they might be called upon to render in carrying troops and muntions of war, was balked by an adverse decision. The measure was held to violate "the equality and uniformity" requirement.^[10] On the other hand attempts to use the constitutional provisions as a means to block special assessments for the securing of public improvements were not sustained by the courts. So long as the assessments did not exceed the benefits accruing to the property and were in proportion to the benefits derived, the court held the uniformity and equality requirement not traversed.^[11] The supreme court of the state has had to pass, too, upon the question as to whether varying total levies for all purposes in different taxing jurisdictions were not in violation of the constitutional restrictions requiring an equal rate.^[12]

Exemptions—The attitude toward the constitutional pro- visions pertaining to the matter of exemptions has striking illustration. The constitution provides that property "only for municipal, educational, literary, scientific, religious or chari- table purposes" * * * "may be specially exempted by law." notwithstanding the fact that the legislature was subject to these explicit constitutional restrictions and had no warrant for relieving a certain minimum amount of property of each tax-payer, yet such exemption was provided for by law during the whole period of statehood down to 1900, when the con- stitutionality of the law was called into question and the practice ceased only to be resumed under another statute.^[13]

Salaries—While the taxation clauses of the constitution have held the main features of Oregon's system of taxation as in a vise the salary clauses have from the beginning been quite completely ignored. The intent of the makers of the constitution in specifically naming the sum to be received by each of the different state officials whose offices were created by the constitution, with no authority granted to the legislature to change, is clear. Furthermore, these officials "shall receive no fees or perquisites whatever for the performance of any duties connected with their respective offices."^[14] These constitutional provisions pertaining to salaries were flouted. Twice the regular procedure was followed in attempting to increase these salaries each time the amendments proposing the increase were lost at the polls.^[15] Nothing daunted, the legislatures added special compensations when additional administrative duties were developed and allowed the collection and retention of fees galore ; but finally in 1905 a "flat salary" law was passed naming a sum "in lieu of all salaries, fees, commissions and emoluments" then received.^[16] What the fate of this law will be if tested in the courts is uncertain. In this connection I am concerned only with the influence of the constitution upon the salaries. The economy (or rather lack of economy) of the fee system long maintained in connection with the state offices will be discussed when the salient characteristics of Oregon's system as a whole are examined.

Internal Improvements—Public corporate participation in internal improvement was tabooed. Enterprise by private corporations even was strongly deprecated by not a few of the leaders in the convention. The ideal of the convention was ultra-individualistic. The document it framed gave no license for participation by the state government, or by any municipality that might be created under it, in any industrial or commercial activity. The contracting of public indebtedness, loaning of credit or investment in corporate securities by public corporations was either absolutely denied or so narrowly and securely limited as to amount to absolute prohibition.^[17] The lessons taught by the results of the rash public participation in internal improvements by many of the states and municipalities of the Middle West in the preceding decades were still fresh in the minds of those who emigrated to the Pacific coast. The simple life of the frontier, too, had become habitual and almost endeared to most. It had been the condition of their fathers and of their fathers' fathers as they had made up the van from the first of the westward movement. They looked askant at the disturbing innovations produced by canals, railways, banks and large scale manufactures. Indicative of this position are the following expressions made on the floor of the convention while the motion to make the stockholders of all corporations "individually liable for all debts and liabilities of such corporations" was under consideration:

Mr. Boise, chairman of the standing committee on legislation, said, "I heard it once remarked by the man who is known as 'the learned blacksmith' (Elihu Burritt), who came up to the place where I was residing in Massachusetts, in the midst of these corporations (and with them I am familiar — and heard their bells morning, noon, and night, from year to year), he said to me he had visited England, and he said he believed that these corporations were the ruin of humanity in Europe. He had taken a great deal of interest in the common schools, and in the intellectual growth of the country, and had paid attention to these subjects, he said that he believed that in this country the corporations — these stimulants to wealth — were to be the bane and curse of the country. That the people of Massachusetts and the people of New England had fallen from the ancient dignity which they once had; that there was not now in Massachusetts that intellectual power and strength of mind and moral force, that there was in it before the corporations had drawn off from the healthful pursuits of the country life, the young women of the country. And I believe, Mr. Chairman, that he was right."

Mr. Deady, president of the convention and mover of the motion under discussion, said, great deal has been said about bringing capital into the country and encouraging enterprise. How much better will we be off then than now? Contrast your own condition with the countries that have manufactories scattered over them. They have millions of wealth, and millions of poor human beings degraded into the condition of mere servants of machinery, overtasked and overworked, and seething in misery and crime from the age of puberty to the grave. Enter in imagination if you will one of those giant factories, so common in old England or in New England. See that hive of human beings with scarcely room to breathe, keeping time to the revolutions of the never ceasing unwearied machinery, and notice the sunken eye, and the collapsed chest, and the mournful sense of servitude legible on every limb. Contrast their condition with the condition of your people, breathing the pure air, with the canopy of heaven for ventilator, and then tell me with whom is the preference? Every one must admit that the preference is with us. And why? It is with us simply for the reason that we yet retain our individual independence, and have not become absorbed by these institutions which dwarf the energies of the body and the soul. I am not in favor of encouraging a fungus growth of improvement in this country."

While provisions for the unlimited liability of the individual stockholder was not incorporated in the constitution a very strong array of inhibitions to prevent the use of public funds for corporations for internal improvement was put in. And yet new conditions developed a new attitude, and led to a different policy though the old constitutional provisions remain. In 1870, state bonds were voted for a canal and locks company. Anticipated proceeds from the internal improvement land grant were pledged to the payment of the principal and interest of these bonds, so that the measure was not counted as a violation of the provision forbidding the loaning of the credit of the state. The legislature (1909) registered the widest departure from the constitutional and traditional policy. Several municipalities were created for harbor improvement purposes, authorized to contract indebtedness if sanctioned by popular vote. This legislature also submitted to the people an amendment providing that the "state, or any county, municipality or railroad district, may pledge its credit," to create a fund for the purchase, or construction, or operation of railroads or other highway within the state.^[18]

Financial Legislation and Treasury Administration— The almost complete silence on matters pertaining to financial leg- islation and treasury administration in the convention should prepare us for careless policies and practices along these lines. During two bienniums, the machinery of the state government and its institutions had to make shift to' run without the passage of appropriation bills.^[19] Not until 1905 was any attention given to the matter of loaning the surplus state funds;^[20] and not until the last session of the legislature were the steps taken to develop a budgetary procedure for adequate preparation and early introduction of appropriation bills.^[21]

The annals of Oregon legislation betray the all-too-common dominance, to a blighting degree, of partisan interests in which the hope of spoils or purely personal allegiance was the controlling motive. It was the recurrence of this to a sickening frequency that impelled the people to the extreme of most radical methods of direct legislation. Subjected time and again to witnessing the spectacle of seeing the members of their legislative assemblies converted into coteries for the advancement of the interests of this or that candidate for the United States Senate, while financial legislation was either ignored or made the pawn of personal politics, it was not unnatural that they should turn to the device of the popular election of their representatives in the upper house of Congress.

Public Domain — Oregon received liberal grants of public lands. The constitutional provisions pertaining to the disposition of them were in entire accord with those controlling the matter of internal improvements. Here too a let-alone policy toward the work of internal improvements was provided for. The proceeds of the 500,000 acre grant, as well as the payments of five per cent of the net proceeds from the sale of public lands in Oregon by the national government, were to be diverted to the common school fund, if Congress would consent. This fine spirit for the up-building of the youth of the state was not sustained so as to bring full consummation for this purpose. To be sure Congress was slow in granting permission, but I fear its tardiness was due mainly to the fact that the matter was not followed up. Only the more recent remnants of these funds reached the common school fund. The commercial motive overcame the educational in the early seventies.

In entrusting the selection and sale of the lands of the state, and the care of the funds from them, to a board consisting of the governor, secretary of state, and state treasurer, the makers of the constitution no doubt believed that they had executed a fine stroke. It gave these officials some substantial work to do during the infancy of the state. On that score, the constitutional arrangement was justified, but on other grounds it was to cost dearly, and prove a penny-wise-pound-foolish arrangement. It assigned specialized work to political officials elected with reference to fitness for quite different duties. Nor has the vital interest embodied in the different state lands, until quite recently, been placed more permanently in the care of specialists. As the state developed and their distinctive duties engrossed the attention and energies of the state officials, the state's land business was turned over with but slight supervision to irresponsible clerks.

One looks in vain in the constitutional debates and during the whole course of legislation on the public domain for some recognition of far reaching commonwealth interests centered in it. Conversion into private ownership, mainly at nominal prices, was the governing motive. "The actual settler," and small holdings were encouraged, but never effectually. It must be said that during the first three decades of Oregon's statehood the problem of conserving the patrimony of the Oregon people in their public lands was an exceedingly difficult one. But just when, in the later eighties, it became very clear what the situation called for, the bars were let down and the looting began.

PART TWO

OREGON'S SYSTEM OF STATE REVENUES.

CHAPTER I.

Taxation.

State governmental activities in Oregon have been supported through revenues derived from the following sources:

1. Taxation, including license charges imposed upon insurance companies, and more recently upon corporations in general.
2. Sales of public lands and from loan of proceeds.
3. State loans.
4. Minor miscellaneous activities.

Taxation has uniformly been the main source and, as the public domain of the state has been almost all disposed of without sufficing to accumulate funds sufficient to yield an income representing any considerable fraction of the growing needs of the state treasury, taxes must continue to be the almost exclusive reliance for state and local revenues.

As already noted, the constitutional provisions pertaining to taxation have up to this time, made the general property tax virtually the exclusive form of taxation possible. There have been, however, subsequent tO' the first few years, minor sources yielding revenues for the state treasury. The proceeds of a poll tax were used by the state government from 1864 to 1877; a special license tax upon Chinamen yielded some state as well as local revenue in southern mining counties during the sixties; an inheritance tax has produced returns since 1904; insurance company licenses with stamp and later net premium taxes have been collected since 1872 ; and a general corporation license tax has been a revenue producer of considerable importance since 1904. These auxiliary sources of state revenues will be first reviewed and then the history of the general property tax in Oregon will be sketched.

A Poll Tax for Commonwealth Purposes was traditional in Oregon at the time of the admission of the state into the Union. During the period of the provisional government, a poll tax of fifty cents had been collected.^[22] The territorial legislature revived this poll tax for territorial purposes in 1854.^[23] The state legislature, in 1862, again had recourse to it for revenue, "to defray current expenses of the state."^[24] The amount was fixed at one dollar. The receipts from the poll tax from September 9, 1862, to September 4, 1864, were only $7,093.25. A census of the voting population gave the number 14,755. Thus not more than one-third of those from whom the tax was due had paid during the biennial period. The secretary of state, on the basis of this showing argued that if the tax could not be generally enforced, it should be abolished.^[25] However, by requiring its collection by the assessor at the time of assessing it; first, of all persons whose real and personal property did not aggregate $500, and later, of all persons liable to it, the difficulty with it was remedied.^[26] The receipts for the second period were $24,057.16, and there was a regular increase until the last period of its use for state expenditures.

The exemption of firemen began in 1870.^[27] Militiamen were also later relieved. In 1876 it was enacted that this poll tax should be retained by the counties.'^[28] It was still levied under state law and continued to be until 1907. County authorities that decided upon a money tax for road purposes were in 1893, required to levy a $2 poll tax in addition to the old $1 state poll tax. In 1903, the county poll tax was raised to $3. The old state poll tax no longer collected by the assessor had degenerated so that the tax commission of 1905 estimated that "probably not one tenth of the persons in the state who are subject to its payment ever meet the tax."^[29]

Akin to this state poll tax, for general state purposes, was a tax of $2 upon every person liable for military duty, en- acted in 1862. The county court was to levy, and the sums collected were to be paid to the state treasurer and placed by him in a separate fund, known as *'the military fund." This tax was aboHshed in 1865.^[30] It had been collected of those liable for military duty and not members of "some independent company." Members of these companies received two dollars a day for the time they were required to drill. The military fund was drawn upon for such payments.^[31]

The Chinese Tax — Oregon's tax upon Chinamen belonged to that class of taxation in which revenue is incidental. Beginning in 1857, through enactment by the territorial legislature, Oregon indulged in discriminatory legislation against the Chinamen within her borders. Under the first law, Chinamen alone were mulcted, but in 1859, "Kanakas" (Hawaiian Islanders) and in 1862, Negroes and Mulattoes also were included in the class thus touched. The earlier acts imposing this tax were uniformly entitled "to tax and protect Chinamen mining in Oregon," and the tax was designated a license. The payments required were more commonly, $2 a month, but in 1858, the amount was raised to $4. For the privilege of trade and barter among themselves, $50 a month was to be collected.^[32] From 15 to 20 per cent of the proceeds were to go tO' the state treasury. A liberal commission, generally 20 per cent, was paid for collection, and the remainder was retained by the county. In the biennium, from 1868-70, $7,revenues</noinclude>7,667.70 were received from this source by the state. This was more than three times as large as reported for any other two year period. The "equal protection of the laws" that must not, under the fourteenth amendment to the constitution of the United States, be denied by any state put an end to such taxation in Oregon.

Insurance Company Licenses and Stamp and net Premium Taxes. — The business of fire, marine and life and accident insurance were under the primitive conditions of early Oregon, quite exclusively in the hands of companies having their homes in the eastern states and abroad. Even to this day, the departure from such a situation has advanced but a slight degree. The transaction of the business of assuming risks and of paying losses does not demand the use and ownership by these foreign concerns of local property. The profits secured through these different forms of the insurance business would thus, under a state revenue system, made up of a bare general property tax, wholly escape taxation. The problem of securing tribute from these foreign corporations for the people of Oregon was early taken up by the Officials whose duty it was to recommend improvements in financial system of the state. They soon discovered how a system of lucrative fees could be developed in connection with the special taxation of the insurance companies. Their meagre constitutional salaries could be supplemented through license charges exacted of these concerns for the privilege of writing policies in Oregon.

First in 1864, there was a futile effort to obtain revenue from fire and marine companies through local taxes imposed upon a bond deposit required of them as surety for their meeting their losses.^[33] In 1870, the bond deposit of fire and marine companies was ordered placed with the state treasurer and a lipense charge was imposed upon the agents of life insurance companies. It was in connection with the rereceiving and the administering of these deposits by the state treasurer that a vigorous branch of the fee system was sprouted. It was provided that the state treasurer should receive $10 for filing each certificate of deposit and for keeping the bonds and returning the coupons to the depositors ; he was to have one-eighth per cent per annum on all amounts in his charge. The secretary of state received a still better deal. He was to receive $10 annually for issuing licenses to agents or solicitors of life insurance companies ; also $25 for issuing and recording each certificate of deposit of bonds ; and five per cent of the proceeds of the sale of stamps that fire and marine insurance companies were required to affix to their policies in amounts determined by the size of the premiums. This stamp tax was in 1889 changed to a one per cent net premium tax. The annual license payment of $100 at first required of fire and marine companies, of which the secretary received $10, was in 1887 changed to a charge of $50. Life and accident companies were now for the first time brought under this tax, and the sum placed at $100. The secretary of state was at this time made "insurance commissioner," with extensive powers of control over the insurance business within the state. His compensation for various examinations and certifications was effected by a system of fees which he was allowed to retain. Forty per cent of all annual license moneys collected by him were also his.

In 1895, the net premium tax was extended to include along with fire and marine companies, life, accident, plate glass, and steam boiler companies, and the rate was raised from one to two per cent. Surety companies also came in for both annual license payments and net premium taxes. The secretary and treasurer continued to receive their respective quotas of fees and percentages until 1907, when a "flat" salary law went into effect. The significance of these fees as a feature of the state salary system will be discussed in another connection. The annual license charge, stamp tax on premiums and percentage tax on the net premiums of the different forms of the insurance business are referred to here to indicate the development of the features of the system of taxation in Oregon, that were supplementary to the general property tax. The treasury receipts from, these sources were an almost negligible quantity until the beginning of the last decade. More recently they are netting the state substantial sums.

The General Corporation Organization and License Fees. — A further step in the direction of supplementing the general property tax was taken in 1903, when organization fees were required of all domestic corporations and an annual license fee of all foreign and domestic corporations. This corporation license charge has from its first introduction yielded a sum equal to about ten per cent of the revenues for the state government.

The Annual License of Gross Earnings upon Car, Express, Telegraph and Telephone Companies. — As transportation facilities developed, it became particularly notorious that the businesses conducted within the state by the car, express, telegraph and telephone companies were not being reached under the processes of the general property tax. An annual license upon the gross earnings of these concerns was in 1906 enacted through the initiative procedure. The constitutionality of this law has been attacked by a telephone company on the ground that the initiative procedure in lawmaking is in conflict with the provision of a republican form of government which the national government is to guarantee each state. The case is still pending before the Supreme Court of the United States.

An Inheritance Tax. — An inheritance tax law was enacted in 1903. This was creditable as the first venture of the state in inheritance taxation, but it embodies only in a weak way the desirable traits of an inheritance tax.

The foregoing comprise the supplementary features of Oregon's system of taxation. It must be conceded that these annual license charges and net premium tax from insurance companies, the organization fees and annual license charge from corporations in general, and the annual license upon gross earnings of the minor transportation agencies do in a rough way tend tO' even up the tax burden where the inadequacies of the general property tax are most patent.^[34]

The General Property Tax in Oregon. — Having passed in review the different auxiliary features of Oregon's system of taxation, we are now ready to examine the experience of the state with its main reliance for revenue, state and local. It will be found that the methods used with the general property tax and the results obtained from it have varied little during the period of statehood. The closely restrictive constitutional provisions precluded any progressive development of it by the successive legislatures. The system set up and maintained with but minor variations exhibits the characteristic problems of the general property tax wherever used. The discussion of the salient features developed in Oregon is probably best arranged under the three following heads:

1. Assessment and apportionment of state taxes among the counties.
2. Exemptions for indebtedness and taxation of credits, including mortgage taxation.
3. Specially designated levies and rates for general and special purposes.

1. Assessment and apportionment of state taxes among the counties.
   
   Oregon has all along experienced the usual measure of trouble in the form of general under-valuation, but with the degrees of it varying from county to county. She has had to face regularly the failure to reach invisible forms of property and even a large proportion of all personalty. Under-assessment has its main motive in the desire on the part of counties to shift their respective quotas of state taxes. Where the township is the primal fiscal unit the race in under-valuation begins among the township assessors. Oregon, not having the township organization, and using the county assessing district, has not had both township and county agencies pulling for lower assessments.
   
   The valuations reported by the different county assessors constituted the basis for the apportionment of the state taxes among the counties from the beginning of statehood down to 1901.^[35] Complaint against under-assessment and the consequent unequal taxation resulting therefrom was expressed by almost every governor the state has had. Nevertheless, during more than three decades, from the beginning of statehood down to 1892, there was no supervising authority whatever for equalizing the valuations reported from the different counties.^[36] It was a sort of honor systemi among the counties; or, more likely, they severally were so keenly sensitive about vesting power in any outside body to add to the state taxes for which they would be liable, each county preferred to take its chances in a state of anarchy. A state board of equalization was provided for by an act of the legislature of 1891, the first members of the board being elected by popular vote in June, 1892.^[37] The board was made up of one member from each judicial district and exercised what authority it had until 1898. It was during just this period that under-valuations were carried to their limit in Oregon. In 1893, when the board began its work the total valuations of the state amounted to $168,000,000. In 1901, they had sunk to $118,000,000. The board had come to an ignominious end in 1898 when the act of abolishing it provided that "inasmuch as there will be a great saving to the state by the immediate passage of this act, an emergency is declared to exist, and the act shall be in full force on and after its approval by the governor."^[38] It was not at all strange that its efforts so far as correcting under valuations was concerned had been utterly futile, for the act creating it had provided, "but said board shall not reduce, nor shall it increase the aggregate valuations, except in such amount as may be reasonably necessary to a just equalization." It had no authority whatever over the earlier stages of assessment. The legislature of the succeeding year attempted the enactment of a law constituting the governor, secretary of state and state treasurer, a board of equalization, but with no adequate authority, and without such adjustment as would have made it possible for these state officials to have attended to such additional duties. It was wisely vetoed by Governor Geer, who, in his message of 1901, recommended a plan, involving the assessment against each county, for state purposes, an amount in proportion to its wealth or population providing that the first taxes collected shall be paid on the state tax.^[39] The legislature of 1901, responded to Governor Geer's suggestion with the first enactment of an expenditure or local revenue basis of apportionment of the state taxes. Reports were to be made to the isecretary of state, of the county expenditures each year, excepting at first those for roads, and later those also for the erection of court houses, those on account of pestilence or epidemics and those for payments of interest and the principal of county indebtedness. The ratio that the average of such expenditures for five years for each county bears to the average of the total of these expenditures for all the counties shall determine the ratio of the state taxes that such each county respectively shall pay. However, a provisional set of ratios based upon preceding county assessments was to be used until the data for expenditures covering a period of five years had been accumulated. The law of 1901, named 1905 as the first year when the expenditure basis should be used, but manifestly reports for only four years of county expenditures would be available for an average, by that time, so the legislature of 1903 set 1910 as the date for beginning the use of the expenditure basis, continuing in the meantime the set of arbitrary ratios. In 1907 there was another postponement, this time to 19 12, before expenditure ratios were to be used. In each case the state officials were to be spared the trouble of making a computation of the averages oftener than once in five years. Under this departure from the valuation basis of apportionment there was a salutary reaction throughout the state from the low assessments of previous years. In some counties there was soon an approximation to a cash value assessment. The law elicited most favorable comment far and wide.^[40] It is probable that if the principle had been actually applied and if there had been a readjustment of ratios from year to year no county would have contested the validity of the plan. As it was one of the counties of the state felt that it was getting the worst of it under the arbitrary set of ratios that had been continued down from 1901, and its official was enjoined from paying over to the state the amount that its percentage in the list called for. By the decision rendered in 1909, it was held that the expenditure plan was unconstitutional. The valuation basis is again enacted. Were it not for the fact that a tax commission was provided for with some supervising authority over assessments, and the further fact that constitutional amendments of the taxation clauses were submitted, a repetition of the same mad scramble for under assessment might be, would almost certainly be, repeated. The constitutional amendments, affecting the power of taxation, now pending would empower the legislature to make reasonable and equitable rules governing the matter of apportionment; they would also authorize it to separate the sources of state and local revenues. If these amendments are ratified, the legislature will have a choice of methods for obviating the motives to under assessment. With the effecting of a natural segregation of the sources of revenue and the reservation of property of general situs for state taxes and property of local situs to local governments, the Gordian knot of difficulty arising from apportionment will be cut.^[41] The problem of partial assessment has always been in evidence in Oregon along with that of under assessments. The fact of the incompleteness of the returns of their property made by the tax-payers to the assessors had become so notorious in the very first years of statehood that the second governor (1864) proposed a schedule for listing personal property in order that more of it might be discovered for the assessors' rolls.^[42] That one-third of the property was omitted from the assessment roll in 1866, is the estimate of a good authority.^[43] Intangible personalty had at this time but little development in Oregon. Conditions would grow worse with larger use of credit in business unless effective means were interposed. The way out of this injustice incident to such partial assessment, through exemption of money and credits and reliance on the compensating force of competition, was barred by the constitutional requirement of the uniform taxation of all property. Legislative effort was made to secure full returns of recorded instruments and bank deposits. The practical effect of this legislation is inextricably interwoven with Oregon's long continued policy of exemption of indebtedness. It is to the wiles of the tax-dodger that this policy fostered, to the shifting of the tax-burden to the humble producer and to the embarrassment of the state official handling such a system, that we now turn. From earliest territorial days, Oregon has persistently attempted to tax credits as personal property. Only during a period of eleven years, from 1882 to 1893, were mortgages treated as real property and taxed to the owner of the mortgage at the situs of the land mortgaged. As already stated, the inclusion of money and credits among the subjects of taxation was controlled by the constitution. Under these circumstances, the exemption of indebtedness represented the purpose of shielding the debtor from double taxation. As early as 1856, during the territorial era, a deduction of indebtedness within the territory was allowed to the amount of solvent claims returned by each taxpayer to the assessor.^[44] This was continued as the law under the state government until 1863. In 1865, the policy of exemption on account of indebtedness was revived, but differing from the earlier practice in that the whole amount "of indebtedness within this state," was to be deducted from the assessable property of the taxpayer.^[45] Under this law the grossest iniquities in taxation were soon engendered. As property was generally assessed at about one-third its real value and every dollar of indebtedness offset a dollar on the assessment roll, it was only necessary for the tax-payer to borrow a sum equal to one- third of the value of his property to escape all taxation.^[46] And yet the law providing for deduction on account of indebtedness was retained. In 1874, however, the sum deducted for the indebtedness of any tax-payer was limited to one thousand dollars.^[47] In 1880, it wias required that the liability must be actual and not merely contingent due tO' a surety pledge and that deduction could be allowed only to the amount of the proportional liability in any joint debt.^[48] The enactment of such legislation is evidence complete as tO' the practice rife. In 1893, the whole policy of deduction for indebtedness was thrown overboard.^[49] Under the law providing for the deduction of indebtedness the amount of indebtedness deducted had each year been greater than the whole amount of moneys and credits assessed. This disparity became larger and larger. By 1885, the amount deducted for indebtedness was more than twice as great as the sum of moneys and credits taxed.^[50] Debts were largely created for the purpose of being used in avoiding taxation, and yet the law had been retained some three decades. A special committee of the state senate on assessment and taxation as late as 1891, was not able to secure a unanimous report recommending its repeal. The minority report of this committee contains a plausible argument for the retention of the law in a modified form.^[51] Under the constitution of Oregon, as interpreted by the supreme court of the state and the United States circuit court, credits must be made taxable and any law exempting them from taxa- tion would be void. By virtue of such liability to taxation cred- itors secured higher rates of interest whether they paid the tax on credits or not. The return of assessable credits had been increased in cases cited through the law allowing deduction of indebtedness upon the debtors giving the name of the cred- itor. So the situation was that the creditors had to be taxed and the law allowing deduction for indebtedness could be made to serve in the detection of tax-dodging creditors. Therefore, the wise policy would allow the debtor to deduct his debt to the amount of the assessable value of the credit within the state to which he can point the assessor. But this argument did not save or secure the amendment of the law. It is probable that the overthrow of the policy of deduction for indebtedness was hastened through the fact that attention was called by the governor in 1891 to the part the national banks were free to take in aiding the fraudulent practices of tax-dodging under this law. The notes and accounts owned by these institutions could not be assessed. To deduct claimed indebtedness to such banks would leave the door wide open for fraud. With under assessment, and no scaling of the debts, an exchange of notes between two taxpayers was all that was necessary to avoid taxation—unless the assessor always was pointed to a taxable credit within the state equal to the indebtedness deducted. And the fiscal statistics of Oregon during these years do not show that any progress was being made in this direction. The plea for lenience to the debtor through deduction of indebtedness, for a policy purporting to shield him from double taxation, must have sounded well to the rank and file of the Oregon population to blind it to the abominations practiced for more than a generation under the Oregon law for the deduction of indebtedness. This failure to discern a common and public interest is illustrated in about the same form in the situation in which enormous incomes are allowed the state officials while the people hug to their bosoms the constitutional provisions limiting the salaries of these officials to meagre sums. The same civic blindness and obliquity is shown, and the selling out of the public good accomplished by the shrewd and sly efforts of the unscrupulous few, in the state's policy for a period with her public domain. Misled by the supposed economy in compelling the intending purchaser of lieu lands to find his own basis lands, he was given, for $1.25, land worth at the time four or five times that sum and easily seen to be worth fifty times that sum to the state in the very near future. To sum up. A distinctively primitive form of the general property tax has characterized Oregon's revenue system down to date. Rigid constitutional prescriptions have called for the uniform and equal assessment and taxation of all property except certain enumerated properties applied to public uses. In the matter of exemption alone, the legislature has consistently stretched its scant measure of freedom. It provided exemptions of a certain minimum to householders. It also attempted to eliminate the double taxation incident to the taxation of credits, and, from the nature of things, failed. A striking innovation in the apportionment of state taxes failed also. But this latter failure came through the invoking of the restrictive authority of the constitution over tax legislation. Two special state tax commissions, one in 1885, and the other in 1905, to investigate and report changes needed in Oregon's tax code, failed to have their main recommendations adopted. They were hampered in each case by constitutional obstructions that barred the way to salutary revision. The last legislature (1909), in submitting the needed constitutional amendments and in centralizing authority in assessment, and in providing a permanent state commission to constitute the assessing board for the property of general situs, took a long stride forward toward modernizing an archaic system. With a competent commission studying the situation and free, under an amended constitution, to advocate needed changes in the grouping of properties, and the segregation of sources to different taxing jurisdictions, as well as bring up to date the inheritance tax, Oregon would secure a fairly satisfactory system in the near future.

   (To be continued.)

1. For an account of the "Finances of the Provisional Government" of Oregon see Quarterly of the Oregon Historical Society, volume vii, pp. 360-432; volume viii, pp. 129-190, contains an article on "The Finances of the Territory of Oregon".
2. The original nucleus of this settlement had in 1843 quite independently organized its "provisional government," the first American political organization west of the Rocky Mountains. This it reorganized and elaborated in 1845 and maintained in a good state of efficiency until superseded by a territorial government in 1849. In the fall and winter of 1847 it had been under the necessity of conducting a campaign against the tribes of Indians who were harboring the perpetrators of the "Whitman Massacre." (For an account of the financial management of this war, see Quarterly of the Oregon Historical Society, volume vii, pp. 418-432). In 1855-6 the territory with but slight aid from the troops of the national government had waged successful war against a powerful combination of the tribes of the Pacific Northwest.
3. House Journal, First Session, p. 13, July 13, 1849; General Laws, Third Session, 1851-2, Jan. 20, 1852, pp. 62-3; House Journal 14th Session, 1853, Jan. 15. p. 104.
4. Quarterly Oregon Historical Society, "Finances of the Territorial Period, 1849-59," PP- 141-154.
5. "Really the people were worn out by the incessant importunities of the self- seeking politicians and obtained an easement by giving 5593 majority in favor of a constitutional state government." — T. W. Davenport in Ore. Hist. Quart., vol. ix., p. 243.
6. The motion for the appointment of such a committee was first made on September 9, its membership was announced on September 10 and reported on September 13. The convention convened on August 17 and adjourned on September 18.
7. "The salaries were fixed at a very low figure for the time in the constitution because the leading men in the convention were over-anxious to commend the constitution to their parsimonious constituents and thereby secure its adoption. But for special efforts of a few, the salaries would have been fixed twenty-five per cent below what they are." — Daily Oregonian, Oct. 8, 1870.
8. Through initiative enactment cities and towns were given exclusive power to enact and amend their charters June 4, 1906.
9. Governor's message, 1907, p. 6.
10. Hogg V. Mackay, 23 Ore. 339.
11. Kadderly v. Portland, 44 Ore. 118.
12. East Portland v. Multnomah Co., 6 Ore. 62.
13. Laws Special Session 1903, p. 29.
14. Article XIII.
15. The proposed amendment of 1864 provided for granting to the Legislature authority "to alter or modify" salaries; that of 1872 provided for specific "flat" salaries. Memorials and Resolutions, 1864, p. 15, and Session Laws 1872, p. 216.
16. Session Laws, 1905, p. 133.
17. Article XI, sections 5-10.
18. Session Laws, 1909, pp. 484-5.
19. 1868 and 1897-99.
20. Session Laws, 1907, pp. 248-254.
21. Session Laws, 1909, pp. 484 and 491-2.
22. Oregon Spectator, Feb. 19, 1846, vol. i, No. 3.
23. Session Laws, 1854, p. 43.
24. General Laws, 1862, p. 89.
25. Report of Secretary of State, 1864, Appendix House Journal, p. 82.
26. General Laws, 1862; General Laws, 1866, p. 37.
27. General Laws, 1870, p. 20.
28. General Laws, 1876, p. 69.
29. Report of the Board of Commissioners, 1906, p. 82.
30. General Laws, 1862, p. 6; General Laws, 1865, p. 20.
31. Governor's Message (Appendix to House Journal), p. 10.
32. General Laws, 1857, P- 213; 1858, pp. 42-3; 1860, pp. 49-52; 1862, pp. 76-7.
33. Deposits were to be in United States bonds or Oregon state bonds. The U. S. bonds were non-taxable and the state bonds were not available.
34. Governor's Message, 1907, p. 6.
35. A decision of the Supreme Court of the state in 1909 pronounced unconstitutional the law of 1901 making county expenditures the basis of apportionment. This compels a return to the valuation basis.
36. An act providing for a state board of equalization was passed in 1872. A board was appointed, but as its work was affected by a judicial decision, its acts were not enforced. The law was repealed in 1874.
37. General Laws, 1891, pp. 182-4.
38. General Laws, 1898, p, 15.
39. Governor's Message, 1901, pp. 1-17.
40. State and Local Taxation, First National Conference, pp. 58, 501-2, 528-9.
41. General Laws, 1909, pp. 483, 485-6.
42. Appendix House Journal, 1864, p. 13.
43. San Francisco Bulletin, January 31, 1867.
44. Session Laws, 1855-6, pp. 77-8.
45. General Laws (Special Session), 1865, pp. 26-7.
46. "There is another defect in our taxing system, which works, perhaps, a greater inequality and injustice than those named (inequality in the assessments of the several counties). In assessing property, under the present law, the party assessed is permitted to deduct his indebtedness from the valuation of his property. In counties where property is assessed at one-third its real value, as is the case in most counties, a person being in debt one thousand dollars would pay no tax; for his property, worth three thousand dollars, would be valued at one thousand by the assessor, which would be balanced by his indebtedness of one thousand dollars. But a prudent neighbor, worth the two thousand dollars or any other sum, and not in debt, would be required to pay taxes on the full amount of his assessment. It will thus be seen, that every dollar of indebtedness, under our present mode of assessment, may balance real value of property to the amount of three dollars. And if the indebtedness of our citizens, taken collectively, amounts to ten million dollars, the amount of property untaxed, on this account, is thirty millions." — Bien- nial Message of Governor L. F. Grover, 1872, pp. 8-9.
47. Session Laws, 1874, pp. 117-8.
48. Session Laws, 1880, p. 52.
49. Session Laws, 1893, p. 6.
50. Report of Board of Commissioners on Assessment and Taxation, 1886, p. 85.
51. Report of Special Senate Committee, 1891, pp. 1-10.