New-York tribune., 1918-01-07
Abandonment Of "Pay-a.-
You-Go" Plan Will In
crease Interest Charges
5 Per Cent Rate for
Long Term Loans
Prominent Banker Explains
Effect of Changing
Mitchels Methods

Mayor Eylan's avowed intention of
aoadoning tho "pay-as-you-go" policy
OF financing enterprises IS going to
cost the city more in interest, probably
as much as S5o0.o00 more a year. On
the word Of a fnancier, whose prom
lnence warrants the assumption that
ne represents the sentiment of Wall
street, return to the issuance Of
iong-term bonds as a basis of credit
"ill mean that New York will pay 3
per cent, instead of 4 per cent inter-
est
That means that If the city bor.
rows S5o,ooo,0 o,0oo-and it probably will
have to borrow more than that-it
Will have to pay s2,5Oo,o00 in interest
instead Of the s2,ooo,ooo that would
have been demanded under the "pay-
as-you-go" policy. And, as the aban-
comment of that policy can only mean
longer. obligations, it will have to nav
the Increased interest for longer
period.
HyIan's Statement OF Policy
1t is understood that Mayor Hylan
and Controller Craig are fully con-
versant with the situation that. will
confront the city when it applies for
money uron the terms in vogue before
the war. Yet in Mayor Hylan's legis-
lative plan, published a week ago,
which bankers accepted as authori-
tatlye, was this paragraph:
The repeal of the 'pay-as-you-go'
policy, which now ties the hands of tn.
Board of Estimate and prevents the
building of schools, the acquisition of
public utilities and all other public i'm
provements.'
The banker who explained yesterday
why an extended programme of ex-
penditures, based on long-term obliga>
tlons. would cost the city more, dc
ciined to permit the use of his name,
for the reason that il would prove to
be cause of irritation," but he was
emphatic in declaring that Wall Street,
IN raising It's interest rates, would be
actuated solely By business motives.
he bankers desire to assist the
Hew administration i'll every practicable
way he said. at is solely and simply
matter of money. The city agreed in
1914 upon a specific plan of financing
Us needs. The bankers gave a great
deal of study to the plan
"As result Of prolonged consider
alton, the 'pay-as-you-go' policy was
agreed to-, and has been adhered to
ever since. If that policy is to be
abandoned, then an entirely new un-
derstanding will have to be reached. A
change IN the city's present policy will
cost the city more for its money. 1t
4 ho 1t+
under the existing agreement
1.-The bankers want to help the City
OF New York. We all do business
here. After all, it is question of
money and business. The 'pay-as-you-
go policy was agreed upon in 1914 be-
cause under the old plan the city was
becoming less and less solvent The
'nay-as-you- go policy put the city's
finances on q solid basis a departure
the lender-the purchaser of the cty's
bonds. Hence the city will have to
pay more for its money"
Policy Worked Out in 1914
City officials worked out the "pav-
as-you-go' policy with J. P. Morgan &
co. in September, 1914, when SIT 7,0OO.-
600 worth of the city's obligations,
held abroad, were about to mature and
the money markets were still stag
gered by the first shock Of the war.
The bankers asserted that the time
had come for drastic reform in city
finances, that 10 municipality could
continue to issue large blocks of long
term bonds such as New York had
placed upon the market for years and
at the same time, carry d large float
ing Indebtedness.
The "payas-youg go" plan. which was
agreed har
divided the enterprises for which the
city would need 10 borrow money into
revenue producing class and a non
revenue producing class. subdividins
the latter according to the years in
which they should be entered upon.
NO change was made in the method
of obtaining money for revenue-pro-
ducipg improvements. such as those in
rapid transit facilities, docks, railway
and water terminals and water supply.
Their cost was to be defrayed as
heretofore by issuing tifty-ycar corpo-
rate stock.
Details of Plan
Payment for permanent improve.
ments which yielded no revenue. how
ever. was to be made from short-term
securities. A certain proportion of the
payment was to be in one year bonds
payable from the next annual budret
and the rest from corporate stock
maturing in not more than fifteen
Years and redeemable either accord
ing to existing law or in equal annual
lnstalments
The proportions payable in one-yea1
ponds and ilfteen-year stock varied &C.
cordlng to whether the Undertakings
were authorized in 1915, 1916. 1917 OF
1918 and subsequent years"
The cost OF public works already au-
thorized was included in the "pay-as.
you-go" plan. but corporate stock anc
assessment bonds issued to replenish
the street improvement fund or that
for street and park openings were spe.
ciflcallv excluded