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least 5 per cent. of the gross receipts into the city treasury. No exclusive franchises can be granted, and no franchise at all granted for more than a twenty-five-year period. Every franchise-holder is required to make an annual report to the city comptroller, showing in detail the financial statistics of his business for the preceding year. The council is forbidden to grant any extensions of any kind to existing franchise companies except on their written agreement to exercise their present franchises under all the terms and conditions of the charter, including the payment of the percentage of gross receipts.
The Portland charter grants to the city complete authority to own and operate public utilities. If franchises are granted, the power to tax them like other property cannot be bargained away. Grantees may be required to pay a percentage of gross receipts in addition to all other forms of compensation, and must in all cases make financial reports to the city auditor according to forms prescribed by him. Whenever a franchise is applied for, the executive board, which I have described in a preceding chapter, is required to make an estimate of the value of the franchise on the basis of either a cash payment or an annual percentage of gross receipts.
A recent act of California, applying to all cities which have not covered the same subject by home-rule charters, requires that when a franchise is petitioned for, the city council shall advertise for bids on the basis of a payment of 2 per cent. of the gross receipts after the first five years. When the bids are opened, any responsible party may raise the highest bid by not less than 10 per cent., and this bid may be raised in like manner. The franchise goes to the highest bidder who is able to establish his good faith by prompt payment of the price offered. All these western laws are of too recent origin to have been tested very fully in their practical workings.
Provisions for the sale of franchises are not confined to the home-rule charters of western cities. Even New York,
the mother of American municipal improvidence and the ancient exemplar of the "piracy of public franchises," has at last got a charter that protects in some fashion the remnant of public privileges still within the city's gift. The most common form of payment for street-railway franchises has been hitherto the assumption by the franchise-holders of certain special duties in the care of the streets. Baltimore was the wisest of all our great cities when the street railways came in, and required them to assume paving burdens that have amounted to millions of dollars. Philadelphia has also received a small part of the value of her franchises in street improvements made or paid for by the street railroads. This, however, is the old form of compensation which does not appear in immediate expenditure and does not satisfy the demand of the people nowadays for a cash payment into the city treasury in return for a valuable privilege. There is nothing especially wrong with the paving tax, provided that the street railways pay in cash the extra cost to the city of paving between and near the tracks. This ought to be reckoned as a part of the cost of the business. The trouble comes where, as in Philadelphia, the franchise companies assume indefinite burdens, and, instead of paying the city for the paving work, do it themselves. Then the city does not know what it is getting for its franchises.
This question of whether franchises should be sold or made valueless by regulation is closely allied to the question of policy in relation to public industries as revenue producers. It makes no difference in the principle whether the franchise is sold by the city or is operated for profit by the city. Municipal ownership and operation of all franchises is often held up as a possible and proper source of large net revenues to the city. If the theory suggested in a preceding paragraph is correct, then this idea of making public industries a source of net revenue to help pay the cost of the general functions of government is all wrong. Public utilities are undertaken by the city usually because they are matters of common necessity, and should be distributed to the people as cheap as
possible. The transportation system of a city ought not to be operated on the principles of the "hold up" by our taking advantage of the necessities of travel to levy tribute upon the people. It ought rather to be conducted on broad principles with a view to performing the greatest possible social service within the limits of self-sustenance. If this policy were followed, an equilibrium between the tendency to lower fares and the demand for better service would be maintained at a point where the system would be fully self-sustaining and no more. The same should be true of municipal waterworks and lighting plants.
1-Local Finance, Fairlie, J. A., Local Government, 249–63. 2-Financial Administration of the City, Goodnow, F. J., City Government in the United States, 286-301.
3—The Revenues of the City, Howe, F. C., The City the Hope of Democracy, 262-79.
4-State Finance, Bryce, J., American Commonwealth, I,
5-Biography of a River and Harbor Bill, Hart, A. B., Practical Essays in American Government, 206-32.
6-The Growth of Federal Expenditure, Bullock, C. J., Political Science Quarterly, XVIII, 97–111.
CURRENCY AND BANKING
87. THE RELATION OF THE UNITED STATES TREASURY TO GENERAL FINANCE.
Since 1840 the United States Treasury has been conducted independently of the banks. That is, the government maintains a system of treasury vaults in which the government balances are kept instead of being deposited in banks. This system, known as the Independent Treasury, though devised prior to the establishment of our present National Banks has been maintained ever since. In the following article Mr. Lyman Gage, formerly Secretary of the Treasury, points out the illogical position the government has thus assumed by maintaining a treasury independently of its own system of banks: .
The United States Treasury in its relation to the banking and financial interests of the country has occupied, since the creation of the national banking system, to go back no farther, an illogical not to say an unjustifiable position. By the National Banking Act, with its several amendments, the Government became sponsor for banking institutions now numbering more than 6,500. The rights, duties, qualifications and responsibilities attached by law to all these institutions were fixed by the Government itself. Having brought these agencies into being, it virtually declared to the citizens of the land: "These are worthy agencies, and they deserve your confidence. For the faithful performance of the duties imposed upon them, and in the interest of your safety, we, the Government, will maintain over them a watchful and detailed supervision, disciplining those unfaithful to duty, while we will peremptorily suspend the power of any who
shall prove unfit." Clothed with those high warrants and sanctions, the national banks as a whole have made successful appeal to the business world; and these institutions now taken together are under money obligations to the people for a sum in excess of four thousand millions of dollars.
What has been the practical attitude of the Government, as expressed through its Treasury and fiscal department, to the banking agencies it has thus endowed with life? It can be set forth in a single paragraph. Never has the Government itself intrusted its financial interests to the safe-keeping of the agencies it has held out to the people as worthy of their respect and confidence. It has, indeed, on several and divers occasions, taken moneys from the Treasury hoard, and, under peculiarly exacting conditions, it has, for various periods of time, deposited a portion of these hoards with banking institutions; but it has in no way conformed to the general method by which the banking agency is utilized by the business public. It has, in fact, persistently refused to receive from that portion of the public from which it derives its enormous revenues those instruments of credit, known as "checks" and "drafts," which constitute the real currency of commerce and trade. Separate, distinct and aloof from the ordinary financial and industrial life to which, through its revenues and disbursements, it stands closely related, it is persistent in exacting cash in hand from its revenue contributors; while, on the other hand, it has distributed its payments in actual funds through its own special appointees.
In all these particulars, it has been as if the banking agency did not exist, or, if existing, as if it were unworthy of Government use. The excess of its revenues, when excess there has been, was withdrawn from that public service to which through the banks it might have been applied.
This, I say, was illogical. It might, indeed, have lain in the mouth of the great corporations such as railroads, the Standard Oil Company and other enormous handlers of money values-to say to the Government: "Your ingenious so-called banking system does not commend itself to our