These show changes during the year so small as to be unimportant. to pay state State bonds, as remarked earlier in this chapter, as a rule are nothing more than promises to pay. These promises Willingness are not in the last resort enforceable by suit. The willingness, therefore, as well as the ability, of the people of the State to honor their obligations is of the first importance. of the people bonds is perimportant haps the most factor in safety CHAPTER IV COUNTY, MUNICIPAL, AND DISTRICT BONDS COUNTY bonds are the direct obligations of counties. Municipal bonds, strictly speaking, are bonds of cities and towns only. In County, muni- cluded in this term very often, however, are bonds issued by school, park, drainage, and fire districts and other quasi-municipal corporations. In all the above cases, the bonds are payable out of taxes levied on all the property within the county, municipality, or district issuing the bonds.1 The means of recovery on defaulted county, Furthermore, a county, municipality, or district, unlike a State, can be sued without its own consent. In case of failure to pay interest or principal, bondholders can bring suit asking for a levy of taxes. In certain States, such as Maine,❜ municipal, and New Hampshire, Massachusetts, and Connecticut, bondholders have the legal right to seize the property of all the inhabitants in execution of the judgment of a court ordering payment of defaulted municipal bonds. district bonds are fairly complete Other factors are similar to those in case of 3 Aside from this question of legal remedy, the leadgoverning safety ing considerations determining the safety of county, municipal, and district bonds are similar to the considerations governing the safety of state bonds. In other words, these factors are of first importance: state bonds (1) The debt statement, or the net debt compared with the assessed valuation and with the true value of property. 1 There is a class of bonds known as special assessment bonds which are payable out of taxes levied on abutting property. These are not in any legal or true sense municipal bonds. 2 Revised Statutes, chap. 47, sec. 96, and chap. 86, sec. 30. Eames v. Savage, 77 Maine, 212 (1885). Public Statutes of New Hampshire, chap. 234, sec. 8. Hawkes v. Kennebec County, 7 Mass. 461, 463 (1811). Chase v. Merrimack Bank, 19 Pick. (Mass.) 564, 569 (1837). Gaskill v. Dudley, 6 Met. (Mass.) 546 (1843). Hill v. Boston, 122 Mass. 344, 349 (1877). Beardsley v. Smith, 16 Conn. 368 (1844). (2) The constitutional and statutory provisions in regard to the creation and payment of debt. (3) The record of good or bad faith. (4) The amount and character of the population. (5) The location, prosperity, and chances for growth of the community. The proportion of net debt to assessed valu As a matter of law and of practice, the proportion of net debtwhich is usually taken to mean the gross debt less the general sinking funds, the water debt, and sometimes debt created for income-producing property other than waterworks - to the assessed valuation varies considerably in the different States. If it is safe to speak of any definite figure as the normal proportion of net debt to assessed valuation, we may take possibly 5%. The methods of figuring net debt for municipalities in the different States vary so much, however, that this figure can be considered nothing more than an arbitrary standard. It is safe to say that a net debt (meaning here a debt the real burden of which is on the taxpayers) of 1% of the assessed valuation is small and a net debt of 10% dangerously large.1 We give below the total debt- including debt for waterworks and other productive purposes, but less sinking-fund assets of the ten largest cities in the United States.2 Debt less sinking-fund assets of the cities in the ten largest United States Debt, less sinking-fund assets per capita $165.95 61.87 81,699,819 34.85 75,676,830 104.75 46,326,458 80.63 41,829,001 67.17 36,539,920 65.51 28,365,058 63.47 22,854,668 31.60 10,513,076 20.19 1 For assessed valuation of counties and of incorporated places having a population of 2500 and over, and for net debts of counties and of incorporated places, see Wealth, Debt, and Taxation, 1913, vol. 1, pp. 348, 398, 752, 841. 2 Ibid., pp. 405, 414, 415, 417, 420, 425, 429, 433. This table shows New York City with by far the largest per capita debt and Detroit with by far the smallest. of a municipality often is modified by the existence of quasimunicipal debtcreating corporations Modifying in most States, to a great extent, the significance of the net debt of any one municipal corporation is the practice of The significance issuing bonds by several different corporations coverof the net debt ing substantially the same territory and levying taxes for the payment of their bonds on practically the same property. We find bond issues by school districts in over thirty States including New Hampshire, New York, Illinois, Utah, South Carolina, and Texas; by water districts in Maine and Massachusetts; by fire districts in New Hampshire, Massachusetts, Rhode Island, and Connecticut; by road districts in Ohio, Mississippi, Louisiana, Arkansas, and Texas; by park districts in Illinois and Missouri; by drainage districts in Illinois, Wisconsin, Iowa, Nebraska, Oklahoma, North Carolina, and Texas; by irrigation districts in Montana, Colorado, and California; and by levee districts in Mississippi, Louisiana, and Arkansas.1 The State of Missouri contains, besides the counties and cities, at least four different kinds of debt-creating quasi-municipal corporations—namely, school, park, road, and drainage districts; and the States of Mississippi, Louisiana, Arkansas, and Texas contain four kinds—namely, school, road, drainage, and levee or "navigation" districts. In addition to the above, we find in Connecticut especially and to some extent in New York state bond issues by two and sometimes three different municipal or quasi-municipal corporations covering practically the same territory and called cities, towns, boroughs, and villages.2 A 5% municipal debt in a State like Massachusetts may be less of a burden on the commun ity than a like Illinois In view of these facts, it is obvious that a net debt of 5% for a municipality in a State like Massachusetts, where the issue of bonds by districts is comparatively rare, is less of a burden on the community than a net debt say of 3% for a city in some State like Illinois, where there may be also a 2% or a 3% debt for a drainage district covering practically the 1 These are simply examples and do not include all the States having such districts. * State and City Section of the Commercial and Financial Chronicle, May 29, 1915, passim. In the State of Washington there is a corporation, distinct from the city of Seattle, called the Port of Seattle, which has issued bonds. (See ibid., p. 168.) same territory as the city and possibly a 2% or a 3% debt issue by park districts within the city limits.1 Constitutional and statutory provisions in Consideration of the proportion of debt to property in our municipalities leads to the question of the constitutional and statutory provisions of the various States in regard to the issue of bonds by counties, municipalities, and districts. Perhaps the best way to treat this phase of the subject is to summarize and compare with the laws of other States the recently enacted legislation of Massachusetts governing municipal finances.2 regard to local debt The leading provisions of the Massachusetts laws The Massagoverning the creation of local debt are as follows:- chusetts laws and towns 1. Except when authorized by law for certain purposes, to be enumerated later, and except for the purpose of paying Debt limit certain demand notes or restoring trust funds, no for cities city of Massachusetts shall authorize indebtedness to an amount exceeding 24% and no town to an amount exceeding 3% of the average assessed valuation of taxable property for the three preceding calendar years.3 2. Cities and towns may incur debt within the limit of indebtedness prescribed above for the following purposes and payable within the periods stated below: Purposes of issue and time gations within debt limit to run of obli 1 In this connection there is an interesting provision in the constitution of South Carolina as follows: that "wherever there shall be several political divisions or municipal corporations covering or extending over the same territory or portions thereof, possessing a power to levy a tax or contract a debt, then each of such political divisions or municipal corporations shall so exercise its power to increase its debt under the foregoing eight per cent limitation that the aggregate debt over and upon any territory of this State shall never exceed fifteen percentum of the value of all taxable property in such territory as valued for taxation by the State: Provided that nothing herein shall prevent the issue of bonds for the purpose of paying or refunding any valid municipal debt heretofore contracted in excess of eight percentum of the assessed value of all the taxable property therein." (Constitution of South Carolina, art. x, sec. 5.) 2 Acts 1913, chap. 719, as amended by Acts 1914, chaps. 143 and 317; Acts 1913, chap. 648; Acts 1913, chap. 634; Acts 1913, chap. 677; Acts 1913, chap. 727, as amended by Acts 1914, chap. 55; Acts 1910, chap. 616, as amended by Acts 1912, chaps. 45 and 49; Acts 1913, chap. 416; Acts 1909, chap. 490, part 1, sec. 5, cl. 15, as amended by Acts 1914, chap. 83; Acts 1910, chap. 379. Acts 1913, chap. 719, sec. 12; Acts 1913, chap. 634. Counties in Massachusetts, except Suffolk and Nantucket, cannot borrow, except in anticipation of taxes, without special permission of the Legislature. (Revised Laws, chap. 21, sec. 39, as amended by Acts 1914, chap. 386.) Fire, water and watch districts are similarly limited. (Acts 1913, chap. 719, sec. 3.) |