The Jersey City news. (Jersey City [N.J.]) 1889-1906, 1896-01-25
The SINKING FUNDS
Comptroller George Hough
Replies to Allan L.
McDermott's Crit
icism.
BEST SYSTEM IN EXISTENCE
The City Pays Interest to Itself
Instead CT to the Banks for
Loans Of It's Own
Money.
BEST SYSTEM IN EXISTENCE

" 9eiiS StdtetHeut OF Allan Il. McDerm0rt
Al the Board of Trade dinner that the
sinking funds of the city are a travesty
on finance, Mr.. Hough, who takes pride
in the system, said this morning.
Mr.. McDermott is an able lawyer, and
know that if the sinking fund plan
was explained to him he would talk diff
ferently | contend that our system is
perfect one and the only practical
method of utilizing the city's money TO
wipe out its indebtedness / can and will
demonstrate this fact to any fair-minded
person.
Mr.. Hough proceeded to give these
facts:-In 1888, when MIR. McDerrnott
was Corporation Attorney, he drew an
act authorizing this city to issue water
bonds to the extent of $525,OoO. They
Were thirty-year bonds drawing AZ per
cent. interest. To pay them it was pro-
vided that $4,000 be inserted in the tax
levy each year. AT a meeting of the
Board of Finance held on January 81,
1883, the Board ordered those bonds is
sued and in all particulars followed the
law. The resolution of the Board, how
ever, provided that the $4,000 collected
yearly in the tax levy should be used
exclusively for the payment of those
Under, that arrangement the s12, 900
could only remain idle until the bonds
matured The bank in which it was de-
posted would have the use of the money
and possibly by lending it to the city
would force the city to pay interest on
its own money. 1t was this fact that
caused Comptroller Hough to revolution
the issue of $685. was renewed. Bids
were invited from banking houses. 1t
was at this time that the Sinking Fund
They had $4,000 in cash in five water
@ funds Is, and they became bidders for the
demption of bonds falling due in 1913
bought $12l, 900 worth.
The fund created for the redemption of
$3.50, 600 Of water bonds issued in 1881 for
twenty-five years bought $4,000 worth
The fund of 1921, created for the re-
d9ssa1nption 9sa1 Of an. issue Of s350.00o. made in
1871 Tor thirty years, bought $19, 900
worth.
The fund of 1922 created for the pay
thirty years bought sI7Soo sSS00 worth 5 l0'4 Tor
The fund of 1923, created for the re-
demption of an issue of 100000 of thirty
year bonds, bought 5000.
This absorbed the entire issue Conse~
s:ssteaS of gaing 70 banks or indiyidlais i1sds
Bought the bonds and is So used aga again li'iao to
buy up more bonds when sufficient
sum has been accumulated. The city in
this way pays itself compound interest
debt. S
The channels through which these va
rlOuS funds procure sufficient money to
make these purchases is that speci-
ne fed sum goes to their credit each year.
f. from 5he tba instances @ mentioned it
stance, the fund of 1916 gets $4,000 a
year. The fund of 1921, $1,000 a year; of
as22, y 9, S., 600 year. and the fund of 1928,
This money invested in other securi-
ties aggregates, sufficient sum to wipe
it4he case Of the issue of s525. 900. prepared
for the insertion of only $4,000 in the
years. consequently al the time of ma
turity the city stood to have s36O,00O with
which which To-, to meet the $4,000. There would
which would have to be met by are. a re,
newal of bonds to that extent. City Off
Gals claim that when he created the
the very, plan adopted that is in vogue
today, that is the investment of the
$4,000 paid into the fund each year SO as
newal of bonds to that amount
As to Mr. McDermotts contention that
a aboaM money S paa t. the ssd sinking d funds
out the bonds of that particular fund.
Mr.. Hough says It is impossible To be-
gin gin with, tn, he holds that it would hardly
after the holder had had them only one
or two years Besides. the, immediate
sasr a Of bends wOud 1saa place the
red creditor. For instance. in the case
Of $74S.oe9 Of bonds falling due in 1925
They are thirty year issue and by the
insertion of $4,000 in the tax levy each
year, and the investment of that $4,000 as
fhs aeerned end the the nsnp u6S Of
Commission calculates to wips out the
bonds ss1n aso upon I3, maturity In this instance
towards the redemption, and the remainder
Fund eommissensrs take this his view 1nh'eG of
to its credit saoo and the h hoider Of s1oo oas
GOO worth ~ of the issue wants to sell and
asks $4,000 premium and interest. the
McDermott contends the bonds shall be
eifv's burden The sinking Fund Fund COM a1ie
for them to pursue is to hold those bonds.
They form an asset of the fund and the in
terest the city formerly, paid the individual
holder goes to the credit of the fund and
dsviduaF ila Esd hsidera su : Dus Donos from N
!, The wipihg out of the bonds is where
For illustration. if the city became bank
rlpt; the holder who was brought out
Investment, while the fund. nd Which vtiS : had lad
been created and received merely for the
payment of a specified issue, would have
been made Of the money. nor anything ing
to meet the issue for which it had been
created By the holding. rather than the
destruction of the purchased bonds, the
fund in the event of settlement would
come in. for its pro rata share the same
as the individual holders. who would in
tlrn benefit by the redistribution of that
share.
BY the strict following of the plan of
using the monies Of one fund to buy the,
bonds OF other funds. Comptroller Hough
contends that in time the city will owe
itself money and individuals will mot be
in it, The system also prevents the tying
I'D of large sums of money in the city,s
departments Now it Is kept in constant
use and brings interest into the city This
does not lessen the tax burden now at all,
but by degrees the city by using the in
various sinking funds wipes out bonds as
they mature. The plan puts an eff actual.s
check upon the necessity of renewing
the greater part Of all maturing issues Of
bonds
There was a time in the history of the
city when money was deposited in banks
and never touched by the city until the
bonds It was raised to pay matured. This
gave the banks the use Of the money. and
loaned the city money and charged 5 per
cent. for It's use. while the city had thoils-
ands Of dollars lying idle in the very
Mr. Hough holds that his plan has met
With the aproval of prominent bankers.
In relation to the Martin Act Dlonses
Mr IIeug Is preparing an exhaustive re-
pert, port which he Says Will show Mr. Nc