Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1921-08-25
RESEARCH BUREAU
CR|T|C|zES HADLEY
Bulletin BIames Controller for
Alleged Fund Juggling,
Costly to City
SEES CHARTER IGNORED

Charges that the financial provisions
of the City Charter have been juggled
SO that funds for current expenses have
been borrowed on fifty year bonds. were
made in today's issue Of Citizens Busi.
ness. the publication Of the Bureau OF
Municipal Research. Bureau officials
hold City Controller Hadley responsible
for the financial direction Of the city
funds. :.
The bureau charges that as n result
of this kind Of borrowing the city VIII
pay out more in interest In the htty-
year period than It has received on the
loan. For loan Of S20G.05O on fifty
year bonds the 'city will lose during
in interest, solely as result OF this
excess borrowing" it says.
This juggling came about. 1t is ex.
plained, as the receipt Of premium
on the recent S.. 900. 900 bond issue.
The bureaus weekly bulletin says:
"The new City Charter says, in un-
mistakable language, that the city shall
not borrow any money whatever for
current expenses. except through
emergency loans, which are limited
b $4,000 900 in the aggregate at any
cne time. and which must be paid out
Of the revenues of the city not later
than the year after the one in which
the loan was created. At the very out
side. any money borrowed for current
expenses must be actually repaid out
revenues within two years.
This is a wise prohibition. 1t rep
1esents the accomplishment OF one OF
the major objects sought by the Charter
Revision Committee.
Prohibition Ignored
II ~ Of n
City Charter. however. and in spite OF
the almost universal denunciation of the
long term borrowing of money to meet
current expenses, the city less than two
months ago borrowed for current eS-
renses more than 5000 900 on fifty-year
bonds! And since the Charter pro-
visions regarding loans became effective
the city has borrowed for current eX-
penses about S4OO. 900 on fifteen, thirty
and fifty year bonds!
LET us see how the law has been
evaded.
j"When the city sold $4,000. 900 Of
fifty-year 51a per cent bonds last month
at 1O4139. it received S5,2O6.!'!0 IN
addition to accrued interest. Or tins
amount S5.OO0.000 represents the
principal of the bonds, and $2O6, $50 Is
called the premium.
on a bond issue was looked upon as
profit and when a discount on bond
issue was viewed as a loss. But not 81
now. We now know that premiums and
discounts are expressions of the differ
ence between the actual rate of interest
and the nominal rate of interest paid
on the debt. or received on the invest
ment. represented by the bonds. We
also know that If city issues bonds
at premium il actually borrows the
sum of the principal and the premium.
and that IL it issues bonds at a dis
count 1t actually borrows a sum equal
to the principal less the discount.
BY Way Of Explanation
"In other words, when the city sol |
the S5.0OO.O0 OF fifty-year 5R
bonds at 1O4.139 it actually Dor
rowed S5.206. .050-the sum Of the
principal and the premium; and il bor-
rowed this money at 1865 per cent per
year instead Of at 80 per cent. OF
this sum. the city will repay $1,000. 900
at the end Of fifty years, and S206,9 $50
| in increasing semi annual installments
during the entire fifty year period. The
city will pay annually a sum equal to
| 51a per cent Of the principal. but some
of this nominal rate of interest is not
| interest at all. Dut on the contrary
is a payment of part of the total debt .
Each payment Of interest represents
actual interest on the unpaid debt
! (S5. 900, 900 principal plus the unpaid
portion OF the S206.050 premium) at
the rate of T. 265 per cent per year and
portion Of the debt itself
"Why did the city borr3% So ,206. $50
when it ostcnsiby set out to borrow
only s. 900 900?
"Is it that the city authorities were
unaware of methods readily available Ia
them. without loss Of any kind, to avoid
borrowing more money than they set
out to borrow:
.Is il that the city authorities did