The Birmingham age-herald., 1914-12-20
Harris, Forbes X Go. of New York Answer George B. Wards Request for
 an Explanation
NO PROTECTION FOR SECURITY HOLDERS
 UNDER PRESENT LAW
Tax Limitation Provision in 1901 Con stitution Should Be Entirely Re- cast or Amended So as to Give
 More Flexibility in the
 Opinion of Expert

Known as the largest bond buyer in the world Harris Forbes & Co., of New York for some years has declined to buy Alabama municipal bonds.
 Believing that this companys reasons for this policy would prove valuable to the people of Alabama who are now pre- paring to change the system of tax laws of the state. George Ward city commis- sioner, wrote to the company few days ago requesting this information.
 Below is the answer to Mir Ward-a discussion of the flaws in Alabama's 1901 constitution, as regards the system of tax laws. from one of the best known financial concerns of the country. Briefly stated, Harris, Forbes & Co de- clines to deal in Alabama municipal bonds because ''the Alabama constitu- tion limits the power of municipalities to levy taxes which are or may be neces- sary and the security of your bonds to that extent is imperilled."
 The 1901 constitution in general comes in for criticism in the letter because it lis far more intricate than any workable provision can be-
 "A constitution should furnish a skee. ton of government and not a code of laws" states the writer Intricate de- tails should not be supplied by a const- tuition. To legislate by constitution rather than by act of the legislature is | usually to legislate unwittingly against I the interests of the people,"
 l The letter in full is as follows:
 Letter of Explanation
 Dear Sir: We have pleasure in &C., l cepting the invitation extended by your | letter of the Fist ultimo, to comment upon the tax limits imposed upon your muilici- palities by the Alabama constitution.
 We have again given the subject close consideration A number of times we have expressed our regret to bankers and municipalities of your state at the 1 necessity of our not dealing in Alabama
 municipal securities. It is an important l field We believe that relatively few in the country's financial centers appreciate l the potential possibilities in the state. 1 But however reluctant we and many l others have been forced to refuse to pur- | chase and recommend to our clients Ala bama municipal securities. We imme- diately assign the reason: The Alabama
 constitution limits the power of munich l palities to levy taxes which are or may I be necessary and the security of your l bonds to that extent Is imperiled. By | the term municipalities as used in this letter we mean to include counties and other taxing subdivisions of the state.
 "The Alabama constitution provides that the tax rate of a municipality in
 any one year shall not exceed cel tain l ratio of the assessed valuation of prop | erty in that municipality, that is. a fixed limit of so many mills tax on each dollar of property valuation. The laud-
 able purpose of this provision is to in sure economy. The immediate effect of
 this provision, however, is to increase in-
 terest rates. Alabama municipalities are
 thus forced to pay more for money prop erly borrowed; for instance, for the in-
 stallation of needed public improve.
 ments.
 Effect of Tax Limitation
 With reference to the bondholder, the
 effect of this tax limitation Is that dur
 ing a period of business depression such
 as has been seen in this country, the
 assessed valuations of property may SC far fall that the municipality because of the limited tax rate. cannot raise suf-
 ficient revenues to meet it's obligations Default in interest payment is the result
  suing municipality is seriously affected for years. A change of tax rates by
 which owners of certain classes of prop
 erty. as for instance, mortgages or other
 personality. are exempt or partially re- lieved from taxation tand this is the mod. ern tendency creates the same possibility of decreased assessed values This ob jection is not theoretical It will be re- } called that in the eos a considerable number of Alabama municipalities were , compelled to default upon their obliga tons because of tax limits. Taxes col 7 lccted were insufficient to pay both cur ! rent running expenses and bond interest
 Bond interest was therefore defaulted. ? 'The United States supreme court hal 3 held, under a tax provision similar t' f that now in effect in Alabama, that ths 5 necessary running expenses of a mu
 nicipal corporal ton must be paid befor' other expenses. and that if the amour
 produced by tax within the limitation | is not sufficient to also pay the bond fContinueL an Pare Eightl