These demand notes were oftentimes allowed to run for a term of years so as to become a part of the fixed or permanent debt, despite the requirement that all such loans should be paid within one year from the date of issue. In regard to this method of getting around the debt limitations the Director of the Bureau of Statistics reported as follows:

The law authorizes such loans simply as a matter of convenience for the purpose of affording a means of meeting current expenses pending collections of taxes and it expressly stipulates that all such loans must be paid within a year from the taxes of the year in which the debt is incurred. While a city or town would hardly, in the face of this law, deliberately attempt to secure a loan on a tax note for a period in excess of one year, it was formerly possible to issue with apparent impunity a demand note and allow it to remain unpaid for a generation, or so long as the holder refrained from demanding payment.1

It was also pointed out that the restrictions placed upon the incurrence of funded debt by general law had been

seriously weakened by virtue of the large number of special acts passed by the Legislature in response to pleas of cities and towns for exemption from its provisions from time to time. The act of 1875 had scarcely been placed upon the statute book before these petitions for special favor began to be made, and, while in the first few years after its passage they were comparatively few in number, it was not long before they began to multiply rapidly. The number of such special acts, many of which took the form of authorizing the issue of loans for some particular purpose outside the debt limit, run literally into the hundreds. While such borrowings have been legalized and are, therefore, not subject to the criticism applying to debts incurred without the sanction of the law, their number and character signify one of two things: Either the exemptions have been granted, in many instances, too complacently, for the mere asking and without sufficiently stout resistance based upon careful inquiry; or the general law was itself too drastic for universal application and was not made sufficiently elastic to meet natural variations in local condit ons. The gross outstanding debt outside the limit for general purposes, under the authority of special legislation, is approximately $73,000,000.2

It is stated that between 1875 and 1912 no fewer than fifteen hundred special acts were passed by the Massachusetts Legislature granting various cities authority to borrow outside the debt limit for one reason or another.3

1 Massachusetts House Document No. 2168, p. 13 (1912).

2 Ibid., pp. 19-20.

Report of the Joint Special Committee on Municipal Finance, 1913 (House Document No. 1803), p. 47.

MUNICIPAL FINANCE ACT OF 1913.

Following the report of the Bureau of Statistics a joint special committee on municipal finance was appointed by the Legislature, which in 1913 submitted several bills proposing a revision of the limitations on municipal debt.1 As a result of the recommendations of this committee, the Legislature passed the "Municipal Finance Act of 1913" which supersedes the law of 1875.2

Limit of Amount of Debt.

The act of 1913 makes practically no change in the debt limits as prescribed in the earlier law except to provide that the valuation of property upon which the limit is based shall be the average assessed value for the three preceding years in towns as well as in cities. As it now stands the law prescribes that "a city shall not authorize indebtedness to an amount exceeding two and one half per cent, and a town shall not authorize indebtedness to an amount exceeding three per cent on the average of the assessor's valuations of the taxable property for the three preceding calendar years." 3

Exemptions

Temporary Loans and Public Utility Bonds. In computing the maximum limit beyond which cities and towns may not borrow money the law stipulates that the following exemptions shall be made: (1) temporary loans in anticipation of taxes; (2) debts for the establishment, purchase or extension of water-works, provided they do not exceed two and one-half per cent of the assessed valuation in cities and five per cent in towns; (3) debts for the establishment or equipment of lighting plants not exceeding one and one-half per cent of the assessed valuation in both cities and towns; and (4) debts for acquiring lands for playgrounds.4

In order to prevent the evasion of the debt limit, the law provides that temporary loans in anticipation of taxes shall not only be payable within one year from the date of issue, but also

1 Report of the Joint Special Committee on Municipal Finance, 1913 (House Document No. 1803), p. 47.

2 Acts and Resolves of Massachusetts, 1913, Chap. 719, Sects. 1-15. For amendments see General Acts of 1915, Chap. 115; General Acts of 1916, Chap. 62 and Chap. 111. For the text of the law, see Appendix, p. 25.

* Acts and Resolves of Massachusetts, 1913, Chap. 719, Sect. 12.

Ibid., Sect. 6.

that they shall not be renewed or paid by the issue of new notes.1 The issuing of notes payable on demand is expressly prohibited.2

Although not a part of the Municipal Finance Act of 1913, mention should be made in this connection of the requirement that all notes issued by towns and by water, watch, light and improvement districts must be approved by the Director of the Bureau of Statistics. These matters were provided for by separate acts in 1910 and 1913.3

Purpose and Term of Loans.

In addition to fixing a limit upon municipal indebtedness, the Act of 1913 enumerates in considerable detail the purposes for which debts may be incurred and the terms for which they may run. The latter vary from five to thirty years according to the object. The purposes and terms of loans are as follows: + (1) For the construction of sewers (thirty years).

(2) Acquisition of land for public parks (thirty years). (3) Acquisition of land for general public purposes (twenty years).

(4) For the construction of and addition to school and other public buildings (twenty years).

(5) For the construction of iron, stone or concrete bridges (twenty years).

(6) For the original construction, widening or extension of streets (ten years).

(7) For the construction of stone, brick or other permanent pavements (ten years); for macadam pavement (five years). (8) Purchase of land for cemeteries (ten years).

(9) For additional departmental equipment (five years). (10) For the construction of sidewalks (five years).

(11) For connecting dwellings with public sewers (five years). (12) For abolition of nuisances (five years).

(13) For extreme emergency appropriations involving the public health or safety (five years).

Debts for any other than the purposes specified are pro

1 Acts and Resolves of Massachusetts, 1913, Chap. 719, Sect. 3.

2 Ibid., Sect. 14.

3 Acts and Resolves of Massachusetts, 1910, Chap. 616; Acts and Resolves of Massachusetts, 1913, Chap. 727.

4 Acts and Resolves of Massachusetts, 1913, Chap. 719, Sect. 5.

hibited under the general law, and the only way in which a city or town may borrow for additional objects is by obtaining a special act from the Legislature.

Method of Enforcement.

As a means of enforcing the provisions of the act it is provided that the State Supreme Court or the Superior Court may be appealed to for a writ of mandamus to compel the officials of any city or town to comply with its requirements.1

Actual Workings of Act of 1913.

As to the actual operation of the Act of 1913, the Director of the Bureau of Statistics had the following statement to make in his seventh annual report:

The Municipal Indebtedness Act, Chapter 719 of the Acts of 1913, became fully effective January 1, 1914, and I think I may say, having due regard for certain temporary difficulties which it was to be expected would be experienced by some of our towns while adjusting themselves to the new conditions, has already more than justified its passage and been productive only of salutary results.2

The Director of the Bureau is of the opinion, however, that the limitation on the total amount of indebtedness should be increased somewhat. His recommendations on this point are as follows:

The debt limit for cities is now two and one-half per cent, and for towns three per cent, on the average of their assessed valuation for the three preceding calendar years, a limitation which has prevailed without substantial change since the original municipal indebtedness act of 1875. Almost as soon as that act was passed, however, our cities and towns began petitioning the Legislature for exemptions and the list of special acts to permit borrowing outside the debt limit has been lengthening year by year, so that, making due allowance for the passage of numerous special acts in the past which perhaps would not have been approved had more complete information as to their necessity been available, it is an open question and has been for some time whether an increase of the debt limit over the amount fixed under conditions of municipal life prevailing forty years ago is not demanded by considerations entirely consistent with sound public policy. But the effect of the operation of the new system of taxation [Income Tax Law of 1916], which removes the

1 Acts and Resolves of Massachusetts, 1913, Chap. 719, Sect. 21.

2 Seventh Annual Report on the Statistics of Municipal Finances by the Director of the Bureau of Statistics, 1912 (Boston, 1914), p. xvii.

assessment of intangible personal property from the domain of the local authorities, will be to reduce the valuations on which the local borrowing capacity must be determined, and by thus contracting the basis of the computation, will materially reduce, in many instances, the actual amount which may be borrowed for needed permanent improvements. I therefore recommend that legislation be enacted with a view to increasing the statutory debt limit at least to the extent to which it may be reduced by the enactment of the income-tax law.1

VI. CONCLUSION.

The above analysis shows that since the seventies and eighties most of the States have placed limitations upon the amount and purposes of municipal indebtedness either by constitutional provisions or by statute. The tendency to continue such restrictions at the present time is shown by the fact that three of the recent Constitutions - Arizona (1910), Oklahoma (1907) and Virginia (1902) — contain definite restrictions upon the amount of debt that may be incurred by municipalities; while the Constitution of Michigan (1908) and that of Ohio (1912) provide that the Legislature shall pass general laws regulating such matters.

In all five of the above-mentioned States, as well as by recent amendments in New York (1909) and Pennsylvania (1913), cities are given the right to borrow outside the debt limit for the construction or purchase of certain specified public utilities, thus indicating a disposition to broaden the borrowing power in the case of publicly owned enterprises of a productive character.

The chief criticism directed against constitutional debt limits in the United States has been that they are too rigid and do not take into consideration the needs of each locality. It has been pointed out that the English method of administrative control is preferable to our system of constitutional or statutory regulation. In England, limitations upon municipal indebtedness are not fixed by statute but are regulated by the Local Government Board or some other administrative authority of the central government. The request of each city to borrow money is carefully investigated by the central body, which grants or withholds permission according to the circumstances of each individual case.2

1 Ninth Annual Report on the Statistics of Municipal Finances, 1914 (Boston, 1916), p. xvi.

? Lowell, A. L. The Government of England (1912 edition), II, 190-191. See also Munro, W. B., The Government of European Cities, 276-277.