The Birmingham age-herald., 1923-10-02
MUNICIPAL BONDS. ARE STRONGER AS. RESULT NE W LAW.
Bond Experts Regret Sinking Fund Provision Not Added
 10 County And State

l. 1OnQdy feSdrulnS the act or the lGS n islature, passed last week, making sit compulsory for municipalities In H Alabama to establish sinking funds Nsfor all future bond issues. It was sssaid the act should have taken in Mcounty as well as city and town
 bonds, in that way directing general 4 attention to all bonds available to the market in the state, and that a
 few of the clauses of the act could be improved by being made more spe- cific. Officials of the Investors Syndl- cate, with headquarters in Minneapo- Sis, Mnn., were more pronounced in $their advocacy of the new law than others Members of the firm, Ward,
 Sterne 2 Go. said the act was step forward improving conditions for the sale of bonds, but left room Hfor even greater improvement. M Other financial men said that from Sdiscussions they had heard of the new &law they were inclined to believe Nit would be of considerable benefit, but not having as yet read the act, were not In position to comment on 1t more fully.
 Needs Further Action.
 M. H. Sterne of Ward, Sterne X Co.,, speaking of the act, said: The Dill is certainly a step in the right di
 rection. It is far from satisfactory from the standpoint of investors n enunicipal bonds, but will add some Nthing to the value of municipal bonds.
 "E hope that the next session of sthe legislature, regular or special, tsvill be marked by a real effort to 3put Alabama's statutes regarding Sthe issuance of municipal and county sbonds in proper shape.
 % "I think a strong committee of the Wlegislature should be appointed to study the subject and draft the neces- sary bills, consulting with bond dls- tributing houses, who are familiar with the requirements of investors attorneys specializing in municipal Flaw, of whom there are less than dozen firms in the United States, and county and city officials familiar with the sale of bonds.
 s One great trouble with our present .situation is that the laws covering the issuance of bonds are patch sw ork Occasionally. somebody has good idea and takes the trouble to get the legislature o1do something, sRs in this case, but the subject has got to be approached as a whole and sWwith a lot of time for study before Aanything really satisfactory will re- suit"
 Real Step Forward.
 K. F. Sharpe and King Merritt state managers in Alabama, Georgia, Florida and South Carolina for the Investors Syndicate, gave out joint stat tement on the act anu llS pIONlS- Ions, as follows:
 "In our opinion senate bill No. 295, (which was recently passed by both f.ho ses of the legislature and ap- proved by the governor relative to the Issuing of bonds and providing 7>for a sinking fund to take care of same at date of maturity is a real step forward in improving the value 4of bonds.
 "The credit of any municipality should be safeguarded as carefully as that of an individual. Had our forefathers exercised 8 little better business judgment and set aside a small amount each year, the cities sand counties of Alabama would have been in much better shape finan- cially. As 1t Is today, over 50 per cent of yhe counties and cities in --shShds al anything like par. This Is due to the fact that no provision whas been made to retire them at date of maturity. If an individual bor- rows money from bank, he must show his banker that he will be in "a position to take care of this loan when 1t comes due. It should be the same way with a municipality. M Bond buyers have more or less lost confidence in Alabama bonds as they could not assure the purchasers sthat they would ever receive any HInlnS except the interest ana there are quite few instances in Alabama where a great deal of difficulty is experienced in securing the interest.
 By making it compulsory for a city to set aside a sufficient amount 8each year out of the general fund to liquidate the bonded indebtedness will, of course, increase the faith of the bond buyers and will make Ala sbama bonds rank with the best bonds Issued in the United States, and we 9have no hesitancy in saying that the legislature of Alabama has done bmore tG stabilize Alabama's credit s5by the passage of senate bill No. 295. S ITO show how easy it is for a city to retire a $100,000 bond issue in 30 wears. we give you the following ex- ample:
 If the city will set aside s1,332 per year for 30 years. they will set aside s39.96o. The yearly amount finvested each year at 5A per cent and the yearly amount compounded Aannually, the cities will receive s6O.O40 in interest. and thus pay off 6the bond issue in full at the end of 20 years. This you will see is a saw ing of over S6o.000 to the taxpayers. In this way each generation will pay dts own debts and not continue to pile up obligations on. the future generation. This will also mean that every city must live within it's in- come"
 Text Of New Law.
 v The new law on bonds as passed by the Alabama legislature, Is as follows:
 "To provide for the issuing of bonds by municipalities and to pro- vide for the creation of a sinking fund to liquidate the bonds of mu- snicipalities and to provide for the investment of such sinking funds and 10 provide for the supervision of certain persons, firms, or corpora tions with whom such sinking funds ssre invested by the superintendents Of banks of Alabama.
 Be it enacted by the legislature of Alabama:
 Section l. That before any mu- snicipality shall issue bonds, except for public improvement bonds se- cured in whole or in part by assess rent, it shall by ordinance or reso- slution, appropriate and set aside out of the general revenue of such mu- ricipaiity an annual appropriation, which, if invested at rate of in- terest equal to the rate at which such bonds are issued. will be suf- ficient at the date of maturity of such bonds to liquidate the principal of such bonds so issued.
 "Section 2. The appropriation pro- vided for in Section 1 hereof shall be known as a sinking fund and shall not be used for any purpose except to liquidate the bonds for (which the sinking fund was created, -,aEd shall be invested as provided in Section 4 of this act
 "Section 3. The resolution or ordi- nance creating the sinking fund herein provided for shall describe the bond issue for the liquidation of which such sinking fund was created, and shall remain in full force and lln0lnR nlcipality so long as such bonds are ont ndiner ind chi edness