Evening star. [volume] (Washington, D.C.) 1854-1972, 1916-06-04

portions and much less asting portions
subject to wear, the ratio between the
two varying greatly with local condi-
tions. The permanent portions Will be
used for many years. and consequently
their cost ought to be distributed over
q term of years. just as the cost OF
sewers, water mains and school build
ings is distributed over such periods, by
issuing bonds One of the leading Ameri-
can authorities highway financing, 5.
E. Bradt a well known Illinois banker,
who is showing his interest in road i'm
provements by serving on the highway
commission of that state. has suggested
as a general guide toward raising
money for so-called permanent high
ways that if the network of such roads
can be constructed without any serious
strain in period of fifteen years
building one fifteenth each year, half
of the annual cost of such work should
be met by direct tax and half by issu
ing fifteen-year bonds. In this way
the cost of the work would be spread
over thirty-year period, but each sec
ton of the road would be paid for
within fifteen years of the time of its
construction. This plan is wholly diff
ferent from that of New York. for in
stance. which has issued fftyyear
bonds to pay for road improvement 8
which must be partly repeated two or
three times before the expiration of
the term of the bonds. The New York
plan has been severely criticised by
practically all students of road fnanc-
ing, while the Bradt plan. some
equivalent. is generally regarded as the
ideal toward which any financial prof.
ect should approach as closely as local
laws and the state of the bond market
permit.
The bonds themselves which are is
sued to pay for road improvements
are now the subject of much discus
sion. There are three classes. which
differ in the manner in which the prin-
cipal of the bond issue is paid off The
Oldest type is known as the sinking
fund. because a sinking fund is ac
cumulated during the life of the bonds
to take them up when they become due.
Every year the same amount is paid
into the sinking fund which is invest
ed SO as to draw interest thereafter.
The sum of these annual investments
and the interest they draw is expected
to furnish amount which will retire
they mature. Unfortunately it is not
always possible to foresee what in
terest can be obtained; sometimes
ignorant or careless public boards fail
into the sinking fund: sometimes these
annual contributions are invested I'M
wisely. Any of these things VIII de-
range the sinking fund and reduce
the value of the bonds and the credit
of the community issuing them.
Annuity Bonds Devised.
The annuity bond is a type devised to
meet the objections to the sinking fund
type. Every six months or year the
same sum is raised by taxation, part of
which is paid to the bondholders as in
terest and the remainder in retiring
part of the principal The amount of
principal retired during the early years
hah 10 ~
payments are large. while the opposite
is the case during the latter part of
the term. While this type of bonds
is generally considered to be theo-
retically better than that retired by a
sinking fund. 1T has certain practical
objections.
The third type is the serial bond A
fixed part of the principal is retired
each year and the interest on all the
outstanding principal is met. Prac-
tically this is a better type of bond
issue to care for than the annuity type,
while IT avoids all the objections raised
to sinking funds. The sinking fund