the number of teachers. If the city is to provide adequate school facilities it is probable that the number of the teachers will be increased.

Of the total $117,000,000 appropriated for the departmental expenses of the city, it is safe to assume that no more than $17,000,000 can be regarded as directly effected by mandatory state legislation. If this legislation did not exist it is not clear that any salary or other expense would be reduced by the local authorities.

How Appropriations Are Met

The appropriations for 1914 (amounting to $192,995,551.62) were met as follows:

The most significant fact about the city's revenue policy is that an increased burden has been thrown on real estate and personal property, while the revenues derived from other sources have not been similarly affected. That is, the increase in the other forms of taxation have been largely the result of the increases in the amount of business done by the community. In the ten-year period, 1903-1913, the general or average tax rate throughout the city rose from 1.43 to 1.82, or 27 1/3 per cent. Besides, there has been an increase of approximately 10 per cent. (estimated average) in the basis of valuation of property for taxation purposes. On this assumption, the effective tax rate has increased approximately 40 per cent.(1)

Expenditures not Provided for in Budget

In addition to the expenditures authorized by appropriations from the general revenue, there have also been very large expenditures from funds created by the sale of corporate stock, by local assessments and by special revenues. Altogether, there are expenditures of approximately a thousand million dollars from borrowing funds that have not become a charge on the general revenues of the city through sinking fund installments or through payments for retirement of debt. During the last

(1) Prior to Mayor Low's administration (1902) the assessed valuation of real estate in the city was about 65% of market value. During this administration the valuation was raised to a basis averaging nearly 90%. Since that time the selling values of properties have changed variously in different parts of the city. so that in localities properties have been assessed above the selling price, but it is claimed that these are exceptional cases and that the average valuation fixed by the tax department is well within the 100%.

$80,000,000 from borrowing, of which $45,000,000 per annum has been for purposes that have been excluded from the constitutional debt limit, and would be excluded from the pay-as-you-go" agreement. The amount of these expenditures in excess of the amounts applied to the retirement of the funded debt has averaged not less than $45,000,000. Expenditures from special revenue funds other than sinking funds are more than $5,000,000 per annum. Altogether expenditures for both public service and public improvements in New York City are at present at the rate of at least $285,000,000 per year. If the amounts applied annually to the reduction of debt be deducted, the net amount of the remaining expenditures is not less than $250,000,000 each year.

Financial Outlook

The financial outlook is one that should enlist the attention of citizens as well as officers. The huge debt that has been contracted is on our backs. True, the city has properties of increasing value, but this does not to any considerable extent, contribute to financial relief. The only reason for the acquisition of properties which have been purchased or constructed is to enable the city to expand the public service both in the extent and variety of its undertakings. But the constantly increasing acquisition of new properties and equipment by borrowing correspondingly increases the annual fixed charges to be met by the community, even though there be no increase in the expense of rendering public service. Or, if we assume that the total current cost of government is not to be increased, then the city must constantly diminish the amount of service which it can render to the public, in order to enable it to meet its growing interest and sinking fund charges. This has been going on until today the City of New York is paying more for fixed charges on its debt than the cost of running the 24 departments and offices directly under the Mayor.(1)

Assuming for the sake of argument that the present administration will not undertake to expand the public service at all, or if it expands, that it will only do so to the extent that it can economize through better management, the probable financial situation which must be faced in 1916 is shown in the first article in this number.

In addition to probable increases in revenue requirements, it is likely there will be a decrease in miscellaneous revenues, due to the business depression, unless the laws are changed. That is, instead of there being $43,000,000 available to relieve taxation, it is probable there will be less than this amount from miscellaneous sources. If the increased requirements of the city government are met squarely and the increase is raised from direct taxes (assuming there will be no increase in the returns from personal and corporation taxes) then real estate on this reasoning

(1) See Tables 20 to 27 on pages 266 to 269.

This means an increase of one point in the tax rate for every added $800,000 to be raised. Assuming that real estate is already capitalized at its full investment value and that the owner will not be able to shift the added tax burden to the rent payer, to the extent that new improvements and increased demands do not keep pace, the tax rate ultimately must operate to decrease the investment value in the same manner as would a tax on a bond or other holding with a fixed income. This is not to be taken as an argument for or against a theory of taxation, but it is to be assumed as a matter of justice that any considerable increase in taxes on one kind of an investment which could not be taken into the calculation at the time property is acquired it puts the investor in this class of property at a disadvantage. When applied to real estate the effect is this: that the decreased valuation due to the increased tax falls on the holder of the marginal equity, who is usually not the capitalist, but the person who is struggling to acquire a home or shop, unless he is a trader in real estate. For this reason Philadelphia has adopted the policy of not increasing the rate on real estate without notice, and of finding new sources of revenue, in the meantime to meet the requirements of added social service.

Another fact to be faced is this: that under the same conditions an increase in the tax rate will operate in the end to reduce the assessed valuation. A rapidly increasing tax rate on real property, therefore, if it has not already, must ultimately defeat its own revenue producing purpose. The revenue problem for the future is one of finding a means of meeting current expenses of government in a way which will not upset the calculations on which the life plans of citizens are based and undermine economic prosperity of the community.

One Which Will Include Plans for Improvements and Borrowings

The need for a financial program was brought to public attention last September, when it became necessary for the city to borrow $100,000,000 in a very unfavorable market and at a high cost in interest and exchange. Since that time there has been increasing public interest on the subject of city finances, and an increasing demand for a statement by the board of estimate and apportionment of what they propose to do.

In fact it was found necessary to come to some agreement with investors before the money could be raised, and question as to what will be the result of the "pay-as-you-go" agreement of September 11th, last, is one of the subjects that has been constantly before the public since that time. The underlying considerations involved in the preparation of a financial plan (or budget of official proposals) are, broadly speaking, of two kinds: (1) those which relate to expenditures which must be met from revenue sources, and (2) those which relate to expenditures which may be met by borrowing. The factors which are to be dealt with in determining what costs should be charges against income and what charges should be financed by borrowing are these:

1. Current expenses including (a) Administration and operation-the current cost of rendering service to the public, and (b) The Upkeep of properties

2. Fixed charges-including (a) Interest and (b) Sinking fund requirements

3. Current operation deficiencies and losses-including "tax deficiencies"

4. Capital outlays, for the cost of additional improvements for

revenue-producing enterprises

5. Capital outlays, for the cost of additional improvements for non-revenue-producing enterprises

6. Refunding operations-to pay debts, the liquidation of which is not provided for as a charge against revenue.

It is thought that in any event, and under all circumstances, an amount equal to the total of the first three of these classes of expenditures should be provided for as a charge against revenues or income. With respect to the other items or classes, it might be consistent with good business judgment to meet them either from income or from borrowing.

How the Financial Problem Has Been Dealt With

During the last five years the board of estimate and apportionment has undertaken to provide for meeting the cost of administration and operation, for current repairs of property, and for replacements of and additions to minor equipment devoted to non-revenue-producing purposes which are financed by revenues. In its provision for upkeep, however, the board has not taken into account requirements for replacements due to obsolescence, except as to minor equipment. It has included in addition to interest and sinking fund requirements an amount sufficient to provide for the direct redemptions of debt, thereby making it unnecessary to refund by borrowing any part of the city's financial obligations, which are not in the nature of borrowings against revenues. On the other hand, the city has financed replacements of properties, as well as additional improvements, out of borrowings.

Much progress has been made in the improvement of method of central control over appropriations by the board of estimate and apportionment. Attention is again called, however, to the fact that the board has not prepared and submitted all of its financial proposals at one time; that it has each year prepared an appropriation bill, which it has called its

budget," but that this so-called budget" has not included anything except such expenditures as are to be met by revenues and not all of these; that the board has not submitted a program of expenditures which are to be otherwise financed, or shown how it proposed to meet expenditures of any kind in such a way that the whole problem is before the city at one time; that using the term budget to mean a financial plan or program, which will get before officers and citizens at one time a complete picture of future financial requirements and how they are to be met, the city has never had a budget. And even in making its calculations for improvements, no attempt has been made to get at the average requirements for upkeep of property, whether for repairs or for replacements. As a matter of planning, the board has attempted but has never succeeded in its efforts to make a forecast of new improvements needed to meet the growing demands of the city. On the contrary, it has passed authorizations for one project after another, as proposals may have been submitted, without attempting to relate the one to the other when projects were pressing for consideration.

The "Pay-as-you-go" Agreement

On September 11th, last, the board of estimate and apportionment entered into the "pay-as-you-go" agreement. (See page 240.) This was an arrangement in specific terms whereby the city officers undertook to limit further increase in public debt, interest and sinking fund charges by agreeing with the purchasers of the one-hundred-million-dollar issue underwritten at that time that the city would thereafter make no further authorizations for non-revenue-producing properties, except under conditions which in four years would require that these projects be financed out of income, with the exception of the improvements which were to be financed through the local improvement funds. A definite arrangement was also made for financing payments under past authorizations. Whether