Evening star., 1932-08-14

! their current operating expenses. Very
few indeed have not had some difficulty,
hut venture to risk the statement that
comfortable majority Of all the Amer
lean cities have met the test. The
prominence of some of those that have
failed in this respect and the popular
interest aroused by the delay in a
teachers or a policeman's pay have
tended to obscure the fact that most
of the cities have kept up current
payments.
In part this difficulty Is due to the
fact that the depression has made 1t
difficult or impossible for many tax
payers to pay their taxes, but in very
large part the trouble lies in funda-
mental defect in our municipal fscal
systems.
Deriving two-thirds Of their total
revenues from general property taxes,
levied chiefly on real estate, the cities
have continued from the earliest days
Of the republic the custom of an an
nual settlement. 1t was formerly col
ected in most cities in one annual in
stallment, although many cities in re-
cent years have divided this into two
semi-annual installments, and a lew
into quarterly payments.
The fact that the tax levying and
tax collecting years in many American
cities are not synchronized has led, per-
force. to the practice OF short-term bor-
rowing in anticipation of tax collections.
For long, long time this practice was
not frowned upon by the banks for the
very simple reason that it was quite
profitable to them. The tax ant1cipa-
ton notes were safe, they were tax free
and easy to handle. When the exigen-
cies of the depression compelled the
banks to restrict these credits. the cities
promptly fell into difficulties.
This implies no adverse criticism OF
the banks generally, since in most cities
they have materially helped the cities
through their troubles. The fault of the
banks lies in the fact that during the
boom times they failed to use their
influence to induce the cities to avoid
the necessity of such large and long
borrowings against tax collections. In
/ some States-Ohio, for eXample-thiS
difficulty is found at its minimum, but
In some others the cities are normally
10 months, some even more than a
year behind. The interest paid on
short-term tax anticipation notes, in
my opinion. represents the biggest SIN
gle preventable waste in American
municipal government. BY solving this
problem according to sound fiscal prac-
tice the American municipal taxpayer
would be saved tens of millions OF
dollars each year without the loss OF
any service and without the reduction
Of a dollar in the salaries or wages OF
any municipal servant.
The cure IS to substitute monthly
collections of taxes for the annual or
semi-annual period. 1t will require
time. of course, for those cities whose
fiscal wears lag far behind their tax
years to catch up but once caught up
the necessity of paying interest for cur
rent funds will be obviated and proper
budgetary control, such as has been
proved and tested in many cities, would
prevent further current deficits.
Higher Cost Slight.
Street railway company finances its
operation by the fares it collects daily;
the gas and electric companies usually
collect on a monthly basis which, with
zoned collection districts, provides a
steady daily income. The telephone
companies usually require the base rate
to be paid monthly in advance, thereby
financing themselves partly in ad-
vance. There is no sound reason, IN
my opinion, why the cities could not
go to the monthly tax collection system
and become practically self-hnancing.
The increased expense of collection,
If there would be an increase-which
I have reason to doubt-would be
small fraction of the cost of current
financing according to the present
practice. It also would have the effect
Of making the cities independent of
banking control, real or imaginery, and
on the other hand, 1t would help the
banks by distributing the taxpaying
peak The banks in Detroit are helping
to achieve these ends by organizing
taxpayers savings clubs along the lines
Of the familiar Christmas savings
clubs. BY using these clubs the tax
payer may pay his taxes In 30 weekly
installments and earn interest at
per cent per annum in the bargain.
Several smaller cities birmingham,
Mich, and Kingfort, Tenn. are ex-
amples) have substituted the monthly
tax installment plan.
This Is but one of the ways in which
municipalities may reduce expenditures
without reducing service, but I dwell
on it because it has other possibilities
for municipal economy.
If the taxpayer buys his local gov
ernment services as he does his radio
or vacuum cleaner-on the monthly
or weekly installment plan-he will
be more nearly tax conscious through
out the year. The taxpaying task will
be easier for him and he will be less
inclined to whoop 1t up for every new
and costly improvement that is sug-
gested, more inclined to vote in the
bond election, more thrifty in his
capacity as citizen.
There Is a third phase of the general
problem A city may be solvent be-
cause it Is not in default. 1t may be
sufficiently solvent and so well managed
that it has been able to finance the
current operations. But it cannot keep
that favorable fiscal position unless 1t
provides for the balancing of its budget.
1t Is folly, in my opinion, to call bank
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