between this country and no port south of Rio de Janeiro. To the lat ter the ships of the United States and Brazil Mail Steamship Company afford but one dispatch a month. To more northern ports of the Brazilian Empire, somewhat greater frequency is attained by the occasional use of other vessels; but the sailings of these are not regular, and the gain by their employment is but moderate. It is not to be doubted that the extension of direct service to the southern Republics of the conti, nent, and regular semi-monthly service to the Brazilian metropoliswould be valuable and desirable, measured by the principles which should alone govern sound postal administration. The application of the petitioners is entirely distinguishable from the subject which was discussed in the last report, and was thoroughly considered and wisely resolved by the Congress at the last session. The proposal then negatived was to pay all existing American companies for no more and no better service than they now render, and for years had rendered, a compensation much beyond what they had been accustomed to receive, and much beyond the limits of adequate remuneration. It would have secured no additional advantages to the postal service; but, instead, would have multiplied its cost, with no other tendency than to enable existing carriers to intimidate competition, and thereby restrict the increase of facilities available for the service, as well as for commercial intercourse. It would have been not only an unnecessary but a pernicious bestowal of the public money on one class of carriers.

This application suggests the augmentation of existing service and the creation of new with the particular states, in both aspects desira ble; the purchase of mail facilities which do not exist, and cannot be expected soon to exist in the ordinary manner. The requisite expendi ture would be for something worthy of expenditure, and within the general usage and the sound principles of the postal service. It should ever be regarded as wise administration to keep postal facilities rather somewhat in advance than in anything lagging to the rear of all the proper requirements of intercourse excited by the ties of blood or race, popu lar education and enlightenment, trade and commerce. Upon this footing very many domestic routes are maintained at a cost many times beyond their immediate and direct returns, but undeniably to the great increase of the country's general welfare; and whenever the substantial need of intercourse by the mails arises provision for such communication is promptly made.

These considerations suggest inquiry whether there be the need of such mail communication with the mentioned countries of the southern continent, whether that need be worthy of special effort to meet it, and whether it can be supplied at a cost justifiably adequate to the present and prospective value of the proposed intercourse. The determination of these inquiries rests with the Congress, and the Department is privileged, and by its information able, only to express the general opinion that such service would be highly useful and is fairly demanded by the

interests of the country, and its early establishment should be attempted; and I respectfully suggest that you invite the attention of that body to the subject in such terms as shall commend it to careful consideration. Should the recommendation meet with favor in its general aspects, the Department might be authorized to solicit proposals for the performance of such a service as the Congress should deem desirable, with limitations as to cost prescribed by its judgment of the probable resulting value to the country or otherwise. There is good reason for the expectation that such an invitation, open to fair and general competition, for a service of a sufficient duration to warrant the requisite provision of vessels, would result in proposals that would enable a desirable contract to be made and a system of communication to be established of great and lasting advantage to the United States. The rapid development and growth of the countries in view, their lack of manufacturing establishments of their own, the desirable character of their products for exchange, and the advantages of extending the fields of enterprise of our citizens, as well as of creating firmer ties between the peoples of our continent, invite the extension and enlargement of our postal facilities by every just, reasonable, and economical method, in consonance with sound principles.

A recent casualty on the sea has suggested a defect in the statutes which deserves consideration. The steamship Oregon of the Cunard line was lost off Fire Island on the 14th of last March. She was then in the service of the British Government, bringing to this country 598 bags of mail, of which, from time to time, 464 have been recovered, scattered along the coast from Portland to Cape Hatteras, 134 bags being wholly lost. Of the matter recovered, the greater portion was deliverable, though much was destroyed by saturation. Application for salvage was made to the Department, but no authority of law appeared to exist, nor was any appropriation available for such an expenditure. It is true the charge was properly upon the British office, but our own citizens were sufficiently interested to have warranted the outlay on our part, whether eventually indemnified or not. Losses have already happened, and it is a constant risk that some vessel outward bound with our mails may be lost under such circumstances that by the offer of reasonable salvage the quantities saved may be much increased, and it would seem that power might be wisely invested in the Department to incur such expense as should appear to be proper in such a contingency.

Long Unsettled Accounts against the Department bave existed in favor of the ocean carriers for the transportation of closed mails sent over our service by foreign countries, which the Department has now adjusted, and, so far as appropriations are available, has paid. There remains a sum due which will be submitted to the Congress for appropriation as a deficiency chargeable to 1883 and previous years.

The origin and nature of these just claims should be briefly stated. The convention of 1878 establishing the Universal Postal Union took effect on the 1st day of April, 1879, and from that date the United States were bound to carry the closed as well as open mails of such foreign states as desired our service, and to collect payment therefor at the conventional rates computed upon the counts and weights taken during the statistical periods provided for. To this convention the ocean carriers were not parties. Their dealing was with the Department, from which they were entitled to the sea postages on the mails they carried, in quarterly payments from time to time as the service was performed. The Department has kept the accounts, made recog. nition of their service, and adjusted their compensation; but, since the Postal Union arrangements begun, has heretofore ignored in these settlements the transportation of the foreign closed mails, notwithstanding it received payment from the foreign states of origin for such transportation. These facts the Auditor reports as clearly shown by his books and papers, and also the total sum so received by the Department from foreign postal administrations for such sea carriage of closed mails. The respective quantities transported by the various steamships did not, however, appear; and to adjust these between them and at the same time protect the Department from any liability to payment of more than it had received, the several owners of the ships employed entered into written agreements, at the request of, and now filed in, the Department, that the basis for determining the amount due each claimant for such conveyance of closed mails should be the biennial statistics taken in pursuance of the Postal Union Convention during the years elapsed, and the amount found due should, when paid according to such adjustment, be a full discharge and satisfaction of all and every claim by such claimant for carrying any part of such closed mails during the period in question. Upon execution of these agreements, and upon the Auditor's certified statements of the amounts due the several companies which performed the carriage, recognitions of their services, reciting the facts, have been signed for the full period during which they were rendered up to the 30th of June, 1886, except in two or three cases awaiting adjustment; and for the greater part of the services rendered since July 1, 1883, warrants have been drawn against the appropriations available.

The Auditor furnishes me the following summary of these settlements:

For services prior to July 1, 1883

For the fiscal year 1884....

For the fiscal year 1885...

For the fiscal year 1886...

Total

$37,468 73 15, 823 23 18,522 31

19, 622 80

91, 437 19

Deficiency appropriation will be necessary to discharge the obligation for the amount recognized prior to July 1, 1883, and for $2,168.44 of the amount for the fiscal year 1884, which was not settled in time for pay. ment while the appropriation for that year was available.

With a view to accurate statements of future service, postmasters at our international exchange offices have been instructed to weigh all foreign closed mails received, and regularly report to the Department. There may arise a difficulty in attempting to make payment to the companies on the basis of actual net weights of mails carried by them respectively, because under the statute the postages (whether sea or sea and inland) on the mails transported are alone payable, and in the case of the foreign closed mails the amounts received from the foreign countries must, perhaps, be taken to be such postages, and these are not computed upon the actual net weights, but upon the basis of the weights taken at the triennial statistical periods provided by the convention. Thus a difference might arise between the amounts received and the amounts paid by the Department, whereby a greater or a less sum than the statute authorizes might in the total be paid to the various carriers. But, for distribution of the amounts received, the actual net weights transported may be employed as the basis of relative adjustment between the respective carriers, perhaps, with greater satisfaction and fairness than any other means.

A juster method of compensation by the Department to its carriers would be to pay them for the actual net weights respectively transported, the rate which by the Postal Union Convention the United States are entitled to receive for such transportation from the foreign country whose closed mails are so carried, and not involve the carrier in the inquiry of actual receipts computed on the statistical basis. Another reason for such a course arises from the fact that international settlements are made by calendar years and are frequently much delayed, so that the amounts distributable to the carriers cannot be known until long after their quarterly payments for transportation of our mails, giving rise to trouble and delays, which are well illustrated in the accounts recently adjusted.

A slight amendment of the statute would cure the difficulty, and is not only due the carriers but the business character of the Department. Promptitude, exactness, and justice ought to characterize all the business dealings of the postal administration, which is more a system of business than of government.

Another such account in favor of the Panama Railroad Company has been adjusted. The circumstances are, in brief, that, prior to the entrance into the Postal Union of Mexico and the Central American States, the Pacific Mail Steamship Company was allowed sea and inland postage on mails to those countries, and in consideration of it paid the Isthmian transit charges. But as, one after another, these countries entered the union, the compensation to that company was fixed at sea postage and it discontinued payment to the Panama Company for its railroad carriage, which became a charge directly on the Department, but remained unpaid. The claim of that company for compen sation has been delayed since early in 1883; but careful examination has demonstrated its correctness, and the amounts due since June 30,

1883, have been paid. There remains due for services performed prior to that date the adjusted and recognized sum of $2,916.95, to authorize payment of which a deficiency appropriation is necessary and should be made. For the future a system of business has been arranged which will, it is expected, afford better service and enable ac curate quarterly settlements and payments.

THE FINANCIAL EXHIBIT.

The financial condition of the postal service for the past year has improved beyond expectation. The previous year closed with a deficiency of postal revenue to meet postal expenditures of almost seven millions of dollars, exclusive of the cost of transportation on the Pacific railroads. Both the reduction in the rate of postage on second-class matter and the increase in the unit of weight of first-class matter from a half ounce to an ounce, came into effect on the first day of July, 1885, and thus affected the revenues for the entire year, restricting by the probable amount of two millions of dollars the increase otherwise to have been fairly anticipated. Counting every reasonable promise, no expectation of a revenue exceeding $44,000,000 could be justifiably indulged. On the other hand, the estimates for the expenditures of the year which had been submitted by the Department for the action of the Congress were $56,099,169.50; the appropriations made by that body amounted to $54,183,642.14; and upon review at the time of the last report it appeared necessary to fix the probable total cost as high as $53,000,000, and the resulting cash deficiency at $9,000,000, exclusive of the service performed by the Pacific railroads.

The results may, therefore, be rightfully regarded as gratifying. For, although the revenue falls short of the expected total by $64,000, the expenditures have been limited to less than $51,000,000, and the deficiency is diminished within that of the year before, being below $6,900,000, exclusive of Pacific railroad service.

The last three years have sustained the effects of the reduction of letter postage from 3 to 2 cents, of rates of second-class matter by one-half, and of doubling the unit of weight of first-class; the heaviest checks upon its receipts which the service ever suffered. From 1879 to 1882 the growth of postal business was unexampled, and the service became more than self-sustaining. Beginning with the last year of that prosperous period, the following condensed summaries of the finances of four years will present the general effects of these changes upon the revenues, as well as the growth of cost. The cost of Pacific railroad transportation on uusubsidized roads is excluded from the cash expenditures, because no payments have in fact been made therefor, and the Congress, since the decision of the Supreme Court previously mentioned, has refused any appropriation; but the statement of expenditures embraces every disbursement for the several years respectively, although in part actually made after their expiration.