The Hood River glacier. (Hood River, Or.) 1889-1933, 1914-04-02
CORRESPONDENT DIS
CUSSES UTILITY BONDS

! To the Editor: Considering the
present rate Of interest on bonds, the
shortness Of time for which they are
issued, and the discount necessary to
make them sell. no municipality can
successfully compete with private cap
ital in the construction, maintenance
and operation Of any public utility
proposition. ln fact, with the Public
Utility Commission now limiting the
public service corporations to eight per
cent net on their investments, there Is
an ultimate loss to the taxpayer when
municipal bonds are voted for public
utility purposes.
There was a time, perhaps, before
the creation Of the present Public
Utility Commission and when long time
bonds were issued al low rate of in
terest. that municipal ownership was a
saving TO the people. But bonds are
nov issued for a shorter period Of time
aud at a higher rate of interest. II
may be that when capital found that
the people were willing and anxious,
for a small possible saving, TO assume
the responsibility Of management and
the possibility of failure. capital then
commenced to raise the rate Of interest
on municipal bonds 10 a point where
the money invested IN municipal bonds
would earn about as much as if il were
invested in the business first hand.
Municipalities cannot expect to con.
struct for any less, hire men or re.
place depreciation for any less. than
private capital does. Ia fact, the rule
is that publicly owned utilities are
more extravagantly built and managed
than are those privately owned.
The East Fork Irrigation Co. has
just experienced some difficulty in di5.
posing of a six per cent, twenty year,
$50, 600 bond issue at ninety cents or
the dollar. The proposed City of Util-
ity cannot expect to do any better OF
even as well in the bond market, as
nearly all the property ipclUded in the
proposed city is already bonded for
irrigation purposes.
Granting that they could do as we'll,
however, bonds of the same amount,
duration, interest and discount would
bring the city only $685.. 900. This
money invested in plant and com.
pared with plant erected by private
capital would look like this:
Municipal Private
Plant Plant
overhead expense ............ same samt
Per cent of depreciatIOn.,...,. same sam,
City plant, per cent interest
on $50 90 0...,................. $500
Private plant, per cent inter-
est on sl35, 600 ....... .....,. slO,sOC
City Plant, per cent sinking
fund ....,..........,,,........ 6,OOO
Private plant, only per cent
net earnings allowed by law. none
Total ............. $4,000 SlO,Sl
Balance in favor of private capital,
81, 200.
This means that private capital can
make s per cent on its Investment, all
that it is allowed by law, and YET
furnish electricity to the people fOI
81, 200 less than a municipal plant could
furnish it for, if it paid its interest
and sinking fund.
Very often municipal plants operate
at a seeming saving to the consumer,
but inthe long run it is the property
owner who suffers for the difference.
If the proposed City of Utility were
to go outside Of the city and sell elec.
tricity cheap enough to compete with
private capital, the city would be sell.
ing at an actual loss, and sometime the
property owners would have to pay fol
the difference.
Some people argue that if the elec.
trio companies can make juice and sell
1t for a profit at certain price, then
the people can make it without profit
and sell it cheaper. The profit allowed
by law to private capital invested in
public utilities is about the same as
the interest people must pay on Dor.
rowed money, without taking into con-
sderation the amount that must be set
aside for a sinking fund.
To assert that this community as a
community has the managerial ability
for such things is fallacy. One might
as we'll assert that the community can
play ball as well as Ty Cobb, or vice
versa, that Ty Cobb has the horticul-
tural ability of this community. So
far this community is the best in the
world in its business of apple raising.
Suppose we illustrate it like this: II
one man had ranch costing $l35, 00C
all paid for, and another man with a
ranch of exactly the same value, the
same size, number of trees, variety
and age, but mortgaged for $3.50, 900,
should start in to compete with the
first one, who would go busted first?
Then handicap the second man with no
knowledge of the fruit business, and
give the first one the advantage OF
thorough knowledge of the business
and trade already established, and
then who would you bet on?
Geo. Minchell.