Connecticut western news., 1922-07-27
BRIGHT OUTLOOK FOR
 MUNICIPAL BONDS
Roger Babson, the Statistician Has Public Borrowing on
 21%%o Basis

made the following statement re- garding the future of municipal issues.
 "The past few years" says MT. Babson, "have been hard for cities and towns desiring to borrow money. During the war an unwritten ban was placed upon municipal borrow ing and unnecessary public building. Directly after the war money was scarce and rates were high It has only been within the last few months 1 that cities and towns have been able to secure what money they have de- sired at a fair rate. Municipal fathers, contractors, and investors are now wondering whether the present decline in rates is temporary or will extend over several years.
 Study of the situation leads me l to believe that the present decline in interest rates will continue and that cities and towns will be able to borrow freely during the next few years. It even looks as if city fa+h- CTS will soon be solicited by bond houses for issues to sell. Up to the present time city officials have been obliged to hunt up banks to buy their securities. The time will soon come when the bankers will be send ing buyers turnout the country to l hunt up bond issues that they can sell. The next few years will see a scramble for bonds on the part If the dealers far greater than any previous scramble for money on the part of the cities and towns. The law of business cycles still operates. As we have had years of advancing interest rates we will have years of declining interest rates. Moreover, these cycles cannot be suspended or changed any more than we can suspend or change the tides of the ocean.
 "In addition to the law of business tcycles, the tax situation is very much in favor of municipal borrowing. Before the days of income taxes and sur-taxes, bonds of our best cities sold on a 319R % basis, and even better. Now, when wealthy men are obliged to pay sur-taxes of from 309e to 509o 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 % basis, or less. Of course, this also applies to the Gov ernment bonds, altho the Govern ment bonds are rather short time and therefore not so attractive to the investor. Cities and towns will temporarily be greatly benefited in their borrowing by any amendment to the Constitution making all bonds taxable. If such a legislation is at tempted, there naturally will be a lot of tax exempt bonds put on the mar ket just preceding such legislation. Some feel that such flood of securi- ties would depress the price, but others believe that if they are to be the last of tax exempt securities, the market will absorb easily all they offer. Whichever is the case, cities 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" continued MT. Bab- son, land probably should make during the next five years, such improvements as they ordinarily 1 would make in ten. The time to make hay is while the sun shines, and the time to borrow money on long term loans is when money rates are low. Hence, cities and towns should not only borrow during the | next few years for their current l needs but should borrow large sums i and invest the same for use for | years to come, especially during the next period of unemployment.
 eff cities operated in a business 1 way they would borrow their money at times like the present, stow it 1 away, and then spend it when the next period of unemployment comes. By spending it at such times, they not only could get the work done very much cheaper, but they could l perform a distinct service to the | people of the community. The gen eral custom followed is the reverse. Cities now do their construction work when it is easy to get money, which is when labor is fully em- ployed and when everyone else is building. This is all wrong. When the period of unemployment comes it is very difficult to borrow money for construction work because money is then tight and the citizens feel poor Hence, under the pres ent system it is impossible to do much to relieve unemployment when it comes. If an ice man at tempted to follow the same system in his business as the city officials follow, he would wait until summer to cut his ice!
 "For investors this means that tax exempt securities, and town