The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1934-12-31
SHARP Squirt
OF MUNICH AL
BONDS CITED
Many Issues During Year
Swung From Record
Lows to Tops. .
BY FRANK Fl. MORSE
OF Lehman Brothers,

No branch Of the securities bust
ness has experienced greater
changes within the last year than
the municipal bond field. The finan-
cial recovery of cities throughout
the country has been accompanied
by swing in the prices of many
municipal bonds from the lowest to
the highest levels in their history.
In the early months of the year
only municipal securities of the
highest grade were salable at any
price and there was literally no
market for second or third grade
municipals. In the latter part OF
1884 some Of the high grade munic-
ipalS were selling above United
States Government securities, while
certain second and third grade
bonds had recovered from SO cents
on the dollar to around par. Munic-
qualities with unimpaired credit
standing we're able to borrow at rec
ord low interest charges.
Positions Improved
The causes underlying this rise
in prices have been based not only
on an improvement in the intrinsic
value of the securities, money mar
ket conditions and the scarcity of
other new issues Of securities, but
also on the very real improvement
in the financial position of munic-
qualities throughout the country.
Among the factors contributing to
the strengthening of municipal
credit, I believe the following are
the most important:
i. Drastic economies in governmental
operations including careful attention to
budget making, elimination of waste in
administration, etc.
2. Marked improvement in tax coilec-
tiOns, during 1884. A study shows that
the tax collection curve, which had
registered a severe decline for the three
preceding years, seemed at last TO have
leveled Off and started upward. Reasons
for this improvement cited by municipal
financial officials include general bust
ness recovery, application of strict
methods of collection, the resort to tax
receivership and prompt tax sales, in
creased penalties for delinquency, PAY
plOyment of instalment payments.
3. The activities of the Public Works
Administration and the Home Owners
Loan Corp. have had a constructive
influence. The PWA, which in 1888
granted more loans to municipalities
than private capital, has continued to
works In an intelligent and able man
ner. Several times during the year it
re-SOld to the public bonds purchased in
the past at considerable PrOht to the
Government. Activities of the Hole I'M
dOubtedly contributed to the improve
ment in tax collections.
4. Public officials generally stopped
playing politics when confronted with
financial crises and acted in an intel
ligent and courageous manner when
such action was necessary to preserve
the credit of their cities.
5. For the first time in many years,
the tax payer and voter were aroused
problems. The Importance of this de-
velopment can not be stressed too
strongly because it means that for some
time to come the taxpayer will examine
cifv budgets and watch municipal
officials to prevent recurrence OF past
extravaganza.
6. The successful contamination or re-
funding programs, accompanied by
recovery in the prices of securities
affected, gave assurance that municipal
tiles could be restored to sound
financial basis. Important programs
carried out during the year included
those for the City of Detroit and the
State of Arkansas. Other municipalities,
among them Newark and Yonkers
successfully carried through funding
programs and inaugurated the prin-
ciple of operating under cash basis
budgets.
One Of the most significant de-
velopments of the year was the clear
indication that there has developed
no tendency whatever in the Ameri-
can people toward reputation OF
their public debt. When one realizes
how difficult it has been to collect
sufficient taxes to carry on during
the last few trying years, this must
be very reassuring to municipal in
vestors.
Trends Must Be Watched
Certain trends in state legislation
as applied to municipal financial
operations must be closely watched.
Some 20 states have adopted tax
laws designed to check the rising
cost of government, but the result
ing loss of revenue has reacted 10
the disadvantage of the taxpayer in
the form of new taxes, such as those
on sales and income.
Within the next few weeks the
Legislatures Of A states will be in
session and any tendency to reduce
existing penalties for tax delin-