The mounting rate of taxation due to the operation of the payas-you-go policy manifested two serious consequences. First, it repelled improvements. No sensible business man would locate a manufacturing plant or other industry subject to such a rate, especially when by a slight shift in location he could either be entirely outside the City of New York or in an adjoining state. Second, the mounting tax burden superinduced an increased number of mortgage foreclosure and tax lien sales. Property owners were unable to bear the additional strain, particularly under war conditions. As the number of such forced sales increased, market valuations inevitably declined. Indeed, as a matter of strict legal right, other property owners would be entitled to have their assessments reduced to the level of market values thus made. Thus the city might easily be forced to exceed its debt limit, without any increase in its indebtedness, because of the reduction in assessed values of real estate. Moreover, large appropriations had been made, particularly for educational purposes, which the pay-as-you-go law made practically unavailable. This was due to the circumstance that the purposes for which such appropriations were originally made had been modified by the educational authorities. But the appropriations could not be modified, because if the old appropriations were rescinded, a new appropriation could not be made after January 1, 1918, except upon the payas-you-go basis, or to be met 100% out of current taxes. About $12,000,000 of appropriations previously made for the department of education were thus affected and rendered practically unavailable. This condition, if continued, would greatly aggravate congestion in public schools and the part-time evil. Moreover, we must reckon with the ever increasing burdens of the present war and the direct state tax.

By way of analogy it may be said that if the federal government met all of the expenses of the present war by taxation without resorting to the sale of liberty bonds, we should have the payas-you-go policy as applied to the war; and every person who now holds a liberty bond would instead be the possessor of a tax receipt.

Under such circumstances, the present controller of the City of New York prepared and had introduced into the legislature a bill to repeal the pay-as-you-go act passed in 1916, and to substi

ciple. This principle is that the pay-as-you-go policy is applicable alike to revenue-producing as well as non-revenue-producing improvements; and that the cost of all such improvements of an enduring character should be met by corporate stock or serial bonds, the maturity of which can in no event exceed the normal life of the improvement paid for thereby. The cost of such improvements is contributed by each year's taxpayers who enjoy the benefits thereof and whose taxes provide for the interest for such year, and, if a serial bond, for the instalment thereof due that year, and, if a sinking-fund bond, for the proper contribution to pay it at maturity.

No reasonable distinction can be made between revenue-producing and non-revenue-producing improvements in the application of this principle. The bill in question was drawn after extended conferences with those familiar with the subject, many of whom had been interested in the adoption of the prior policy. In order to avoid the excesses from vicious financing of earlier days, the bill expressed the duration for which corporate stock for various purposes should be issued. For example, for the acquisition of real estate, water supply, rapid transit and like improvements, it was very generally conceded that fifty years was proper maturity. Unquestionably real estate (unless for a seaside park), would endure for fifty years and ordinarily its value would be as great then as now. In England they are issuing obligations running for seventy-five years for the acquisition of real estate for public purposes. The reference to the kind of real estate that might be part of a seaside park is in relation to a large seaside park near Neponsit, since the acquisition of which, fortyseven acres have been carried away by the tide, hardly a very enduring piece of real estate. Part of it is now over on the Jersey coast.

Corporate stock for fireproof buildings and similar improvements was limited in its duration to forty years. Other periods were specified for improvements of a less enduring character. The resolution of appropriation is required to express the duration of the improvement and fix the maturity of the corporate stock authorized. As an illustration of that I might say that officials who have acquired the habit from former administrations have recommended that long-term corporate stock be issued to pay for window shades in one of the hospitals that is being equipped.

We make them pay for these out of their budget appropriation for 1918. This is merely an illustration of how deeply ingrained is the disposition to use long-term bonds for the most ephermal improvements. These were the reasons for the pay-as-you-go policy, and I think we have now discovered the correct application of it.

This bill as originally prepared was in the form of an amendment to the Greater New York charter to correct the changes made by the pay-as-you-go act of 1916. In the course of discussion in the legislature, it appeared that it would be more expedient to leave the charter provisions for the present as they stand and to change the form of the bill in question to an emergency act. Accordingly, the bill was slightly changed by providing a new title describing it as "An Act for the Relief of the City of New York in Financing its Obligations During the Period of the War, and One Year Thereafter, in Reference to the Issuance of Corporate Stock and Serial Bonds." It then provided that $15,000,000 of such securities may be issued in any single year in addition to any that may be authorized under existing laws. The existing laws provide for the issuance of corporate stock for revenue-producing purposes and for special purposes, including rapid transit and water supply, such as the new court house and site, Bronx Parkway and change of grade crossings.

I commend to you that you make an assault upon the state legislature of New York at its next session to repeal those special acts which permit bodies that are not accountable to taxpayers to appropriate long-term corporate stock for such purposes as the Bronx Parkway, practically without limit. Of course we have the court-house site, for which no more money can be spent, because it is not there to spend, but that property could be made available for other public purposes if the court-house act were repealed. As the matter now stands that property is practically condemned to idleness until such time as the city may see fit and may have the funds to build a new court-house, or may abandon the enterprise entirely. That is a matter absolutely in the hands of the legislature. We got a bill through the senate this year to make that change so as to render the property available for war purposes, but the assembly smothered it for political reasons.

The practical effect of the $15,000,000 provision is to permit

such as school houses, hospitals, correctional institutions, fire and police protection. The limitation of $15,000,000 was agreed upon as the minimum requirement of the City of New York after an exhaustive inquiry into the subject.

The policy of the present Board of Estimate and Apportionment is not to authorize a public improvement of any kind that is not distinctly of a war character. There is no chance whatever for any appropriations being made for the acquisition of new parks or the improvement and erection of buildings of any kind that do not distinctly and directly contribute to the successful, diligent and speedy prosecution of the war.

This bill passed both branches of the legislature without opposition except of a political character. This opposition was continued before the governor to the very last moment of the thirtyday period. It was of a purely political character, doubtless intended to cripple and embarrass the present city administration in dealing with war conditions and caring adequately for educational, hospital, fire and police necessities. Although Governor Whitman was of the same political faith as the most insistent opponents of the measure, he took the broader point of view, being convinced that the relief provided by the bill was imperatively required. This was the last bill that the Governor signed before the expiration of the thirty-day period. It became a law by his signature and is known as chapter 658 of the laws of 1918.

A

FINANCING LOCAL GOVERNMENTS1

MORTIMER L. SCHIFF

Kuhn, Loeb and Company

CCORDING to the most recent reports, we are now spending at the rate of $40,000,000 per day in round figures, of which about one-fourth is said to be for loans to our Allies. This is approximately $15,000,000,000 per year, and it is stated that our future requirements will be considerably larger than this. We are raising now about $4,000,000,000 by taxation, which is almost 27% of our present total expenditures and over 35% of those for our own account, a percentage of expenditures provided by taxation considerably in excess of what any other of the belligerents, including England, secures from that source. It is now proposed that even a larger percentage of our requirements should be raised from taxation and a figure as high as $8,000,000,000 has been mentioned in this connection. This is not the time or place to discuss the advisability or feasibility of such a program, but one thing is clear, that the amounts to be raised-both from taxation and by loans-are simply stupendous and that it will require the closest economy-public, corporate and individual-to make them available. Figures like these are impossible to visualize, and of course no such amount of money exists. But, as has frequently been said, it is not money —that is, gold and silver-which must be forthcoming, but what money represents-namely, labor and goods. We have pledged to the prosecution of the war all our resources in men and in money, but these are not in a form to be readily available. Both require mobilization, and just as the selection of men for military service must be made carefully to cause the minimum of disturbance to the industry of the country, care must be taken in securing the necessary financial support so as to make it readily forthcoming with the least possible interference with the country's ability to finance its business and industrial requirements. Just as there is a limit to the number of men who can be taken from productive