The Montgomery advertiser., 1904-09-27
prislng that no exchanges have been
n ade.
 Interest Rate on New Bonda.

| have been submitted to the State au- thorities to float a bond at less than 3 1-4 per cent basis, but I have reason | to believe that these offers, If carefully | analysed would prove to amount to nothing more than requests for. options. l During the past six months unusually favorable monetary. conditions have prevailed for placing high grade securl- ties at a low rate of interest. The country. during that period, has been | sober and sane, the speculative fever which has ragged for three or four years previous has entirely subsided, and the attention of investors has been directed almost entirely to issues of undoubted | security without particular reference to Income. These conditions still prevail, but signs of returning business activity | are evident, and 1t is reasonable to sup. rose that speculative issues will again come into favor. with the inevitable re- suit that gilt-edged State and Municipal bonds will be less in demand. It IS known that the wish nearest the heart or the present administration Is to fund the State debt on a per cent basis. The existing law, however, requires | that tho present debt of the State be not increased. In view of the fact that bonds of the State of Massachusetts, which are regai ded as the standard by the savings banks of the East, bearing 1-2 per cent interest, maturing Tn 1914. are purchasable at a figure yield ing an income of more than 3.21 per sent. and the bonds of the State of Louisiana. as well regarded as any Southern security, bearing per cent interest, can be bought on a $40 per cent basis, 1t would seem that the ex- pectatton of ceiling Alabama bonds without commission at par on q 8 per cent basis Is, in the language of Ingalls,. an iridescent dream. Our nefshboring State of Tennessee, with assessed values In 1908 of $<12,516,4l3, against Alabama's assessment of $30s,- 625.6S2 has a bonded debt of about s14.ooo. .ooO. Of this amount, s12.so7, 300 is in per cent bonds due July 1st, 1918. These bonds have a market value around 96, yielding the investor a re- turn of 3 1-2 per cent. The State of Mississippi. with bonded debt of $S.o0o.ooo, recently negotiated at par an Issue of $500,0o0 bonds at l-2 per cent, and 1t is still in doubt as to whether the purchasers will carry out their contract. having as yet received no money for the bonds The State of tennessee is obligated under its laws to purchase and retire each year a pro- portion of It's bonded debt; thus by legislative enactment It's bonds are given convertibility which must nec- essarily enhance their market price, While the Constitution of the State of Alabama prohibits the creation of any ne" deot except to repel Invasion or to suppress insurrection, 1t expressly states THAT THIS PROHIBITION DOES NOT APPLY IN THE CASE OF BONDS TO REFUND OLD ISSUES. or temporary loans to meet deficiencies. Feasibility of Floating Bonds at 8 IA
 Per Cent.
 Alabama should follow the example Of Tennessee. and the Legislature should authorize the Governor to issue 5000, 900. of 50-year per cent bonds. negotiating them with responsible par ties. who would obligate themselves to redeem and return to the State author tiles for cancellation the present bonds as they mature. l know of parties who would undertake this proposition, and while the immediate effect would be to increase the bonded debt of the State $596,400, the anual interest charge would be $270,0o0' as again $410,52o at present. a saving of s140,520 a year, which would amount in 50 years to $,O26.000. The exchange of 5000, 900 of per cent bonds for the present bonds amounting to $S.403, 800. would be equivalent to n sale of the new Threes to net the State s3. .36, which would net the investor but a fraction more than 1-4 per cent.
 Liquidation of Debt.
 l would suggest that the Legislature require that the annual interest saving say $l40.000, should be invested each year in bonds for calcellation. The in terest saving at the end of one year on bonds so redeemed would amount to A2o0. which saving would increase just this much each succeeding year. until at the end of forty years 1t would aggre- gate $3444.o00. Meanwhile bonds cancelled at the rate of $l40.Oo0 per year in forty years would amount to $5,600,000 To which add the saving
 on interest just referred
 to ''''''''.'.... 3444000 Making a total of. S9,o44,o0O or $44.ooO more than sufficient to can eel the entire issue. Should no action be taken and new bonds be issued un- der the present law, the probabilities are that the rate of interest would be not less than 3 12 per cent, and the State would be no nearer out of debt at the end of 50 years than 1t Is today, as future Legislatures would always find some way to apply the States in come. A frequent criticism of Ala bama bond issues is that inadequate provision is made for their ultimate retirement. and feel that the import ance cannot be too strongly urged of making some provision for a sinking fund for the States debt.
 The plan above outlined shows how this debt can be wiped out in 40 years without increasing the present tax rate. or without using any funds of the State | that have not previously applied for l interest purposes
 RecapltulatiOn. l
 If the $s,403.600 of State bonds soon to mature are extended under the pres | ent law on a 3 12 per cent basis, the | State al the end of 50 years would | have paid interest on them amounting | to $14,206300. and at the end of that | time would still owe the principal sum. viz, Ss,403,6o0. If. on the other hand. the bond Issue should be increased to $9.000.000 at per cent interest, under the plan proposed above, the State would, at the end of 40 years, have pad out interest thereon amounting to $6. .356.0o0 and would be out of debt
 adv. W. P. G. Harding.
 WORK AT Y. NJ. c. A.