Evening star., 1922-07-22

WELLESLEY HILLS. Mass. July
22.-While discussing the opportuni-
ties in the present bond market,
Roger W. Babson. the statisdcian, 10
day made the following statement
regarding the future of municipal
issues.
.rh. past few years have been hard
for cities and towns desiring to Dor
row money. During the war an un-
written ban was placed upon mu-
nicipal borrowing and unnecessary
public building. Directly after the
war money was scarce and rates were
high Il has been only within the
last few months that cities and towns
have been able to secure what money
they have desired at a falr rate
Municipal fathers, contractors and IN
yestors are now wondering whether
the present decline in rates IS tenn
porary or will extend over several years
Study of the situation leads me 10
believe that the present decline III
interest rates will continue ana tha'
cities and towns will be able TO Dor
row freely during the next few years
1t even looks aS if city fathers VIII
soon be solicited by bond houses Tor
issues to sell. Up to the present
time city officials have been obliged
to hunt up banks to buy their securi-
ties The time will soon come when
the bankers will be sending buyers
throughout the country to hunt up
bond issues that they can sell. The
next few years will see scramble
for bonds on the part of the dealers
far greater than any previous scran-
BILE for money on the part of the cities
and towns. The law of business
cycles still operates. AS we have had
wears of advancing interest rates. we
will have years of declining interest
rates Moreover. these cycles can.
not be suspended or changed any
more than we can suspend or chanSe
the tides of the ocean.
Tax situation Favorable.
IN addition to the law of business
cycles, the tax situation is very much
in favor of municipal borrowing. Be
fore the days of income taxes and
sur-taxes bonds of our best cities solo
on a 31s per cent basis and even better.
Now, when wealthy men are obliged to
pay sur-taxes of from 80 to 40 per cent.
these tax-eXempt bonds of cities and
towns should be in great demand.
Some of my associates even state that
many of these bonds may go up until
they are on a 2h per cent basis or
less. OF course. this also applies to
the government bonds, although the
government bonds are rather short
time and therefore not so attractive
to the investor. Cities and towns
ill temporarily be greatly benefited
in their borrowing by any amendment
to the Constitution making all oonds
taxable. If such Legislation Is at
tempted there naturally will be a
lot of tax-exempt bonds put on the
market just preceding such legisla-
ton. Some feel that such flood OF
securities would depress the price. but
others believe that If they are to ne
the last Of taX-eXempt securities the
market will absorb easily all they
ny - s<t. y1 ha
and towns will have no difficulty In
disposing Of their securities during
the next few years, and the interest
rates should steadily and continually
decline.
"This means that municipalities
should Immediately adopt civic plan,
ming schemes, and probably shoulo
make during the next five years such
would make in ten The time to
make hay Is while the sun shines, ana
the time to borrow money on long
term loans is when money rates are
low. Hence, cities and towns snouid
not only borrow during the next few
years for their current needs put
should borrow large sums and inFes'
the same for use for years to come,
especially during the next period Oh
unemployment.
"If cities operated in a business way
they would borrow their money at
times like the present, stow 1t away
and then spend it when the next pc
riod of unemployment comes oy
spending it at such. times they hol hol
only could get the work done very
much cheaper but they could per
of the community The general Gus.
tom followed is the reverse. Cltles
now do their construction work when
it is easy to get money. which Is when
labor Is fully employed and wheh
every one else is building.
Custom Ii Wrong.
''This is all wrong. When the Pc
riod of unemployment comes II 10
very difficult to borrow money for
construction work, because money is
then tight and the citizens feel poor.
Hence under the present system 1t Is
impossible to do much to relieve un-
employment when it comes. If an ice
man attempted to follow the same
system in his business as the city om-
cials follow he would wait until sum-
mer to cut his ice!
For investors this means that tax
exempt securities and town bonds
should now be purchased, even though
they have already. gone up some In
price. Those who contemplate buy
60 up still higher. When buying tax
exempt issues seek the long-tern1
ones, as these will show the greatest
profit All Of this should be specially
encouraging to the contractors and
builders, as it means that great deal
of public work will be done during
the next few years. City water plants
will be extended, more sewers will be
con instructed, new public buildings
will be erected and the good road
movement will continue to grow.
This should be welcome Information,
concluded the statistician, Ito those
who handle contractors supplies and
building materials and especially all
such materials as are used by cities
and towns"
General business as reflected in the
index figure of the Babson chart IL 13
Iper cent below normal This IL an