The Montgomery advertiser., 1904-10-09
EetterS to tbe Gdftcr
ALABAMA,s BONDED DEBT.
sfr. A. M. Baldwin Replies to Mr. Hard-
 tag of Birmingham.

stand the proposition of MT. Harding to be that the Governor call specia. session of the Legislature to autnorike the issue of ss, 900 ,oO0 of fifty year i-2 per cent. bonds, to be excnahseo lVi the present bonds of the State amount. ing to Ss,4o3,o0o. He states 'na. .s while this plan would increase ases sne sae the amount of interest charges woulo be s270,000 as against s4l0520 at pre- I sent, a saving of t140,520 a year, wnich would amount in fifty years to Si,uAo,- 900. As part of his plan he proposes that the Legislature shall provide that the annual saving of interest sheuIo I be invested each year in bonds Tor con collation.. He shows by calculation that the State would, In forty years, l save on bonds redeemed and interest thereon the sum of s9,044,000; and that this amount would be more than suf-
 1cient to pay off the $9,0oo,000 issue ana that the State would thus be free from | debt. MT. Harding further states that he knows those who will obigate 1 themselves tQ retire the sS,4oS,ooo oi the present State bonds at their ma turity for the proposed issue or ss'- o0o.ooo of ss and that this would a pc I equivalent to the sale of the new 3s Il to net the State 93.36 which would net Il the Investor but A fraction more than 1-4 per cent" Taking Mir. Hardings suggestion as to this manner of issuing as 1-4 per cent bond, as denominated by him in bis caption, the exact figures 1 that the State should receive upon this basis would be 93.S4 for the proposed Ss instead of s3.36. a difference of AS points amounting to s43,2oo moro than 1 MT. Harding contemplates the State should receive for the 3's, which sum would of course go as a bonus to the investor In addition, the plan pro posed by MT. Harding If figured on | 93.a4-the exact 1-4 per cent basis would cost the State the sum of sS2S,- 657 more than to issue 1-4 per cent. | bond for the actual amount of the debt to be funded; this comparison Is shown In the table appearing below.
 | Passing by the fact that MT. Hard
 ing's plan for the payment of the debt in forty years contemplates the savings of interest upon the first years diff ference in interest a year in advance Of its availability, 1t seems to me that the two principal features of his plan, viz. the increase of the bonded debt l Of the State and the practical redemp- ton of the bonds before maturity, are impossible of accomplishment. but ad- | hitting for sake of argument the legality of his plan to increase the debt, it is nevertheless clearly imprac- ticable to count on retiring the bonds upon the basis he proposes. If there 1 were no other cause to appreciate the value of the bonds in time, the fact that the State was required by law to purchase $140.000 in the open market each year would certainly advance the price, and this advance would diminish the amount of bonds which his plan provides to be thus annually retired; to provide against such advance by any option of redemption would be to shorten the average maturity of the bond and therefore lessen the price re- ceived by the State in the first in- l stance. As I do not regard the re- demption feature as legal, for reasons shall state, I do not compare the proposed issue of 3's with the issue of | 1-A hnN n4o ty, lot fn INa redemption of the bonds before maturi- ty and the wiping out of the State debt with the interest thus saved.
 | I am informed that 1t is very doubt
 ful if the section of the constitution ex- cepting the issuance of bonds for the purpose of funding the existing indebt- edness of the State from the prohibition | against creating new debt. would au- thorize the increase of the bonded debt of the State for funding purposes. However this may he-the recent Con stitutional Conventipn by Section 2S3, Article 1T, made valM the Act of 1895. l as amended by act of 1899 (excepting so far as such acts authorize the redemp- tion of bonds before maturity and the | Governor was empowered to act under the same and under each of It's provis ions provided the bonds should not be redemable until their maturity. The | the issue of bonds hereunder to the | amount now outstanding, and I am l confident that no issue of bonds in ex cess of the present bonded debt could | be fioated for I believe that more | careful investigation by intending pur- chasers would disclose these circum- | stances and that they would not there | fore purchase any excess issue. Even | if the purchasers, in view of the favor able commission contemplated under | this plan would accept them, the Gov ernor would doubtless act within the clause of the constitution validating the refunding acts and issue no bonds in | excess of present debt. .7t- Again, 1t will be seen that Section 2S3 | expressly forbids the redemption before maturity of the funding bonds. While | MT. Hardings plan seems to contem- plate the purchase by the State of its bonds. and not a technical redemption, the result Is practically the same and | 1t seems to be within the prohibition of Section 2S3 of the Constitution.
 l maintain that this prohibition of tion of the bonds before maturity, in view of the high credit of the State and the many demands upon its reve- nue for needed improvements and de- velopments, was wise. It Is not good business to pay off a loan that may be continued. If the value of the money to the borrower Is greater than the sion of the Legislature furnished an | illustration that 1t would be unwise and inexpedient to apply the revenue of the State to pay off the present bonded indebtedness which is one that it can easily carry at low rate of interest, to the exclusion of adequate appro' priations for public education, for the old soldiers and other necessary Stale purposes. Appropriations having these objects in view were restricted, or held up by the Executive because it was ap- preheEded that the revenue of the State would have proved insufficient It will be of greater benefit to future generations to have the revenue of the State not needed to preserve its credit applied to its improvement, rather than lapse of fifty years free from debt. but backward in its development.
 am of the opinion that the Act of 1895 as amended by the Act of 1S99 and made valid by the Constitution. Is amply sufficient for the funding of the debt of the State within legal and practicable limits and that no extra session of the Legislature Is neces. sary.
 MT. Harding's proposition is, actually. as I have shown. an issue of bonds upon a basis somewhat in excess tf 3 IA per cent. The rate at which thIs loan can be fioated must be more CT less a matter of opinion or conjecture depending for Its accuracy upon the many contingencies that may arise to affect the value of the securities at the time of offering. No one can say what conditions may rule two years from must take it's chantes on that, but r. It desires to issue bonds at present rates the negotiations. owing to this uncer- tainty. should not be deferred. I do not think 1t possible that the State can negotiate 3 IA per cent bonds at par