Page:The New International Encyclopædia 1st ed. v. 14.djvu/147

MUNICIPAL DEBTS. 115 MUNICIPAL DEBTS. floating indebtedness that the latter is frequently iynored in uidinary discussions. History, Oiliects, and JIetiiou.s. The develop- ment of municipal debt is for the most part coin- cident with (lie expansion of niunicijjal functions, an expansion which began with the nineteenth century and was particularly active during the decades between 18,50 and 1S70. A factor which contributed largely to the growth of American municipal debts was the aid given to railway enterprises. Many municipalities so burdened themselves with debt for the sake of assisting in the construction of railways through their limits, that for many years they were obliged to forego the most essential public improvements. Such railway aid was granted by rural as well as by urban communities. Railway assistance aside, the chief objects for which urban conununities issue bonds are the opening and paving of streets, the construction of water-works, sewers, bridges, schoolhouses and other public buildings, and lighting. Counties, in some sections, issue bonds for bridges and for liighway improvements. Finally, school districts, chietly those located in rural sections, issue bonds to raise money to construct schoolhouses. Obvi- ously, loans in anticipation of taxes, and floating debts, may have their origin in almost any of the various needs of the municipality. Loans in an- ticipation of revenues are usually raised on notes or tax certificates. Obligations for ma- terial and for labor or other personal services, or for amounts due on contracts, are frequently ac- knowledged by warrants on the general treasury, or on some special fund ; and such warrants be- come negotiable paper. When the cost of specific- ally local improvements, like paving or sewers, is met by special assessments on the property directly benefited, and the collections are de- layed or distributed over a series of years, the obligations are met in a variety of ways, ranging from warrants to s!iort-t«rm bonds. In negotiating municipal loans, bonds are commonly sold, after public advertisement, to the highest bidder. Temporary loans on notes are commonly ofl'ected at banks. The financial luincijiles involved in a consid- eration of municipal debts are in most respects similar to those alreaily set forth under Debt, PiBLic; and Finance. Jlunicipnl bonds are issued for definite periods and the best and com- mon practice is to provide in advance for their payment at matvirity. Formerly such provision was made through sinking funds, but for a num- ber of years past there has been a growing ten- dency to pay off municipal bonds in iiistallnients. This plan obviates the necessity of administering a number of special and rapidly accumulating funds, which sometimes present financial difficul- ties, and are always subject to diversion on the part of unscrupulous or ill-advised municipal oflicials. In fixing the tenn for which municipal bonds are to run, it should be borne in mind that since niunici]>al bonds are issued to distribute the ex- pen* of certain improvements over a number of years, the term of the bonds issued should bear some relation to the probable life of the improve- ment involved. Street pavements, for instance, require renewal in from ten to twenty years ; it would therefore he a gross mistake to make Donds issued to cover their cost run forty or fifty years. Land purchases, on the other hand, in- volve a class of property that appreciates rather than depreciates as time goes on; it might ac- corilingly be permissible to pay for them by an issue of long-term bonds. Another important factor in fixing the life of bonds is the character of the undertaking to which the proceeds are to be devoted. Water-works, for instance, produce a revenue, and not only may, but should l)e self- supporting. The means are therefore at hand to pay oil' the debt, and the sooner this is accom- plished the quicker can water rates be reduced or the service improved. Schoolhouses produce no revenue; and this fact aflords a reason, but not necessarily a suflTicient one, for making the life of the bonds co-terminous with the probable useful life of the structure. The interest rates on municipal bonds have fallen from and 7 per cent, a few decades ago to 3 lo and 4 per cent, as a normal figure for the bonds of municipalities of good standing. The premiums generally received virtually lower the interest rate, often to a considerable extent. Debt Limitation.s. The interests of borrower and lender combine to make necessary some limit to the amount of indebtedness which a munici- pality may incur, and the purposes for which money may be borrowed. Considering the latter first, it is obvious that permanent loans should never be made to meet current expenses, although occasionally it may be necessary or wise to fund a floating debt that, through bad financiering, has grown beyond ordinary revenues. Public loans to aid private enterprises are generally held to- be against public policy, and are unconstitutional in some States. As to the amount of indebtedness which a municipality may incur, prudence de- mands that this be kept so low as not to over- burden the taxpayer with interest and other capital charges, or, in the case of jiroductive undertakings, the patrons thereof. Even wOiere there are no constitutional, statutory, or charter limits on indebtedness and taxation, there is a practical limit to the burden of taxation which the citizen will bear. B)it most municipalities are subjected to definite limitations as to debt and taxation. Such limits varj' widely in differ- ent countries and States, and even among the cities of a single State. It is generally some percentage of the assessed valuation, but as the relation of this to the actual value of the prop- erty assessed varies widely, comparative debt limits are likely to be very misleading, unless supplemented by explanatory statements. In general, it may be said for the United States that the legal debt limit ranges from .3 to 10 per cent, of the total assessed valuation, althniigh some cities are subject to no legal limitations in this respect. Where the limit is by statute in- stead of constitution, appeals for its extension or for exemptions on account of certain classes are frequently made to the Legislature, Water- works bonds are quite often exempted from com- putations of the debt limit, and recently there have been efforts in several States to exclude from the debt limit all bonds issued for revenue- producing W'orks. In CJreat Britain some classes of loans are subject to the sanction of Parlia- ment, and the control of other classes has been deputed by Parliament to the Local Government Board. This body has a well-orcanized stall' of experts; it gives formal local hearings on appli- cations for specific loans and grants or withholds its consent to the applications. On the Continent