The sun. [volume] (New York [N.Y.]) 1833-1916, 1914-05-05
STATE AND CITY LOANS.
ADVANTAGES Of Serial Bonds Over the
sink Ing Fund system Set Forth.

sink Ing Fund system Set Forth.
| To THE EDITOR OF THE SUN-Str. The
| reported calling by the Governor of New
York of n special session Of the Assembly
| Of that State to meet In May. expressly
| to consider financial matters. justiies at
tention to the marked contrast between
certain New York and Massachusetts
| fiscal methods.
| The present long time borrowing
method both Of the State and city Of New
York is a precarlous and costly archaisn.
| Both the State and the city adopt the
| sinking fund method OF paying long time
| public loans. Last year 1t was discovered
| that the citizens OF the State of New
| York had been taxed for 3ink.ng funds
nearly $i9000,000 SiS,773.0i5.3O In ex-
cess Of the amount required under
scientific bond amortization plan This
extraordinary overtax appears to have
progressed through four administrations
and to have grown out Of an erroneous
and mistaken policy pursued. The sink
ing funds Of the city of New York now
total more than s3oO.ooo.0oo.
Until recently the State OF Massachu-
setts far outranked any other state in
| the Union In the magnitude of its debt
or late the state of New York has ex-
ceeded Massachusetts In that respect and
the bonded debt OF the city OF New York
now exceeds the interest bearing debt Of
| the United States.
Last year Massachusetts, by legislation
| prohibited the sinking fund method of
| paying public loans. That State now
makes compulsory the serial bond method
The contrast between tho two methods
IL astonishing when large loans on long
| time are involved
Massachusetts, first authorized serial
bonds for pubic loans in 1882. but left
their adoption optional with each munich
palty. Serial bonds differ from sinking
| u, hnt ha A
part Of the principal is paid each year.
so that the interest charge annually be-
comes less, both the expense and risK
of sinking funds are obviated. the debt
Is paid automatically and the ultimate
cost Of the loan to the taxpayer Is re-
duced enormously.
Advancing legislation in Massachusetts
as to serial bonds has finally led to a
compulsory law In that state. providing
that mo further sinking funds for the
payment of debt snail be established by
any city or town" except FOR the normal
termination of existing sinking funds.
(Acts OF 1913. Chap 7l9, Sec. l3)
Massachusetts also in the same act
confirms a fundamental rule of finance
that the duration of "A loan should be we'll
within the life of the object for which
the money borrowed Is expended. For
instance, a fifty year loan to include items
FOR street paving that wears out within
nicipal fiscal blunder. and Is prohibited
In Massachusetts, no matter how sue
cessfully" such q loan could be placed.
Both the State of New York and tho
city OF New York have recently offered
startling illustrations OF the radical con-
trast between Massachusetts, ana New
York methods Of public financing.
In January last tho State of New Yorl;
borrowed s5s,o00,0oo at 4is per cent. for
fifty years, and so successfully" as u
have received a premium therefor of So
O9a000 The number Of bids l.ceived was
467 and no wonder. $50 pleased" II
was reported. was Governor Glynn that
he sent note OF Acknowledgement and
Generalization TO Comptroller Sohmer"
Last week New York city successfully
: borrowed $65.000.000 al Al per cent FOL
fifty years, receiving a premium of S9io,
500: and Congratulations therefor are
. chronicled.
In neither OF these cases do the future
fluctuations of the borrower appear L
have had due consideration The seriou:
effect on real estate hereafter and OF tn,
great middle class throughout the state
and in the city appears to have been
, slight.d.
In Massachusetts In such cases not oull
Is the taxpayers welfare upheld. but the
extinction OF the debt Is better secured
2 The comparative lnsignihcance OF pre-
MUM il well understood; and premium.
, are paid for serial quite as VOL as fOl
sinking fund bonds
OmIttng the fractions respectively OF
/. and I, per cent. IN the two New Ypih
c loans above referred to- and assuming
for simplicity I'm computation that boil
, loans We're issued at a I per cent rate
the actual difference IN cost "a Taxpayers
!. in favor OF the Massachusetts, or serit
bond method for the state of New Nuil
= s5l 100000 fifty year loan. the s!nkinl
y fund operating on "a s.! par cent. basis
, would be about $4,000, QUO or II IN,
sinking fund operated on a per cent
- basis about sl5.Oo0,000
For the city of New York $4,000. 90,
fifty year loan the actual difference Fl
= cost 10 the taxpayers IN favor Of tn,
serial bond method assuming that IL,
sinking fund operated ou a y per cent
: bass. would be about S23 10000 or q
the sinking fund operated on a 1 pei
I cent. basis about sl?,OO0.000.
= one reason for this enormous difference
between the two methods is that the sink
ing fund provides for the principal only
not FOR the interest. The impressive DIFF
ference In the interest account between
= the two is shown by these tables:
principal .t.......s..... ....s. s5l,opo,oo
= Rate Observation-Disclosures. per cent
i In,sfe.t sinking fund mcthodi ,lo$oGo,ao