the redemption of debt hold about $175,000,000, leaving a little over $250,000,000 in debt outstanding as of March 31, 1916. This is debt outstanding for all purposes, revenue-producing and non-revenue-producing, and represents an existing debt of little over $50 per capita. It compares with over $1,000,000,000 of New York city outstanding debt in the hands of the public, equivalent to over $175 per capita. One might expect that with this relatively low debt the tax rate of London would be proportionately higher than that of New York city, but while the basis of assessing taxes in London is at variance with that followed in this country, the tax rate in London in the year 1916-1917 figures out about 1.6 per cent of the estimated capital value of the real estate and not much over 1% of the estimated value of all property in London, including personal property. This is considerably below the present tax rate of New York city, which is over 2%, and also considerably below what the rate has been in any one of the last few years. I understand that in London the only increase in taxes in the last ten years has been due to expenditures for educational purposes.

Moreover, in the London budget of 1917 the interest charges were estimated at approximately one-eighth of the city's total expenditures and an amount slightly larger than one-eighth was devoted to redemption, making a total of a little over one-quarter of the budget devoted to the service of the debt. In New York city the total debt service in 1917 was approximately 29% of the city's revenue, but it was divided between 21% for interest and only 8% for retirement of principal.

It is true that London has not gone so far as New York in municipal undertakings. Only about one-fifth as much debt has been issued for revenue-producing undertakings as for welfare, education, health, streets and such purposes. The city owns tramways, but not the subways

nor the water supply, and it has adopted a housing scheme. In some of the other English cities, however, much the greater part of the issuance of debt has been for purposes which are self-supporting. In Manchester and Sheffield about 66% of the debt outstanding represents revenue-producing undertakings; in Liverpool, nearly 70%; in Bristol, about 80%.

With regard to the $386,000,000 which New York city borrowed from 1904 to 1914 inclusive, however, a large part of the amount was expended for purposes directly connected with the public welfare, health and education, and no one would contemplate any reductions in expenditures for such purposes. But there were large expenditures of other characters during this period, and while I have not the figures showing the detail of this $386,000,000 between 1904 and 1914, the reports of the controller indicate that during the years 1908-1917, inclusive, bonds were issued for what might be termed luxuries, as follows:

Expenditures of this sort, while desirable in themselves, had no small part

in increasing the city's debt to the figure which was the subject of discussion in 1914.

The officers of the city, despite the fact that for some time they had discontinued the practice of paying for non-permanent improvements out of the proceeds of long-term bonds, and since 1911 had limited the life of bonds for repaving to a maximum of ten years, coinciding with the anticipated life of the pavement, felt with the bankers that further curtailment was necessary. There was substantial agreement that the purposes of such expenditures were very desirable in themselves, but the fact that they were not of a self-supporting nature made it appear wise to make them charges against current revenue, or to eliminate for the time being such of them as could be postponed. The city administration, after some two weeks of discussion, proposed an acceptable plan. This plan, subsequently enacted into law, provided that for a period of three years an increasing proportion of the cost of non-revenue-producing improvements should be paid from current revenue, until at the expiration of that period the total should be paid from current revenue. The mechanism for financing the share of the cost to be charged to current revenue was a one-year note, to be provided for in the city tax budget of the following year. The balance of the cost of such improvements was to be financed by a fifteen-year serial bond to be taken up as it matured in equal annual installments, also through the budget. This policy was adopted on two theories: first, that a city-like an individual-should not buy luxuries except such as it was able to pay for out of its current income, viz., its tax collections; and second, that if the city continued to put out long-term bonds for purposes that might be dispensed with, the legal debt-incurring power, already very much reduced through large issues since consolidation, might disappear and—so to speak-hamstring the city financially.

The policy of the city administration in adopting this course was one of the bravest things politically that has ever been done in New York city. The mayor and the controller both knew that the course which was being adopted would mean one of two things, or possibly both of them. First, a reduction in the supply of the things which the people of any city like to have: fine public buildings, good streets, and public facilities of the highest grade. Second, as the non-revenue-producing expenditures could not be eliminated entirely, there would be an increase in the tax rate, but the mayor and the controller and the members of the Board of Estimate were clearly of the opinion that such a change was wise in order to correct what had possibly been a too rapid rate of expansion in the city's expenditures, and the proposed plan was adopted.

There are, naturally, at least two views on any such question, but my feeling is that the results to the city of the "Pay-as-you-go" policy up to the time of our entrance into the war were distinctly beneficial. The report of the chief accountant of the finance department, one of the few men living who understands the city's accounts and the only one able to fathom the city's Sinking Fund and General Fund practice, stated that because of the adoption of this plan the city's outstanding debt remaining out of that created since 1914 is $10,000,000 less than it would have been

under the old fifty-year Sinking Fund plan, while the interest payments during the three years, 1916, 1917 and 1918 are over $500,000 less than they would have been under the former method of finance and, up to the present year, the increase in the tax rate was only nominal.

With our entrance into the war, however, conditions changed materially. All calculations were upset. Lord Kitchener's statement that the war would last three years was decried, and a policy which was adopted two months after the beginning of the European conflict could not necessarily stand under the changed conditions existing after over three years of destruction of property and increase in costs of almost everything that goes into the city's accounts.

New York city is a very large business corporation, with an income and expenditure of over $200,000,000, about one-fifth of the federal government pre-war budget. Quite a little of this money goes into the purchase of materials and supplies, and with an increase in Dun's index price of about 100% since the beginning of the European War, the city had the choice of stopping practically all expenditures, of deferring payment for some of them, or of raising the tax rate to a degree that would have been alarming. There were objections to all three courses, but such an increase in the city's budget as would cause a reduction in the values of real estate through a too sudden increase in the tax rate, involved the immediate risk of eliminating the city's margin for new borrowing for construction purposes and creating a situation which the "Pay-as-you-go" policy had been intended to prevent. Rather than risk the development of an unhealthy situation in real estate conditions, Controller Craig suggested that at least for the period of the war the provision requiring the city to pay its non-revenue-producing expenditures out of current income should be modified in favor of a policy which would permit the city to fund such expenditures over a period not longer than the life of the improvements created.

This policy, while less conservative than the "Pay-as-you-go" policy adopted in 1914, is a great improvement on the plan which had been followed for years. The legislation which has been passed permitting this change will permit the city for the period of the war and one year afterward to issue corporate stock and serial bonds up to $15,000,000 annually for non-revenue-producing improvements, provided they mature and are redeemed within the estimated life of the improvement as certified in the resolution authorizing it. Its estimated useful life varies from fifty years for property believed to be permanent, such as water supply, rapid transit or sewers, down to fifteen years for expenditures for machinery and ten years for purposes not otherwise specified. This plan of procedure follows the most advanced legislation on municipal financing in Massachusetts and New Jersey and, accepting the theory that all improvements are to be paid for by bonds, it represents almost an ideal policy.

The present plan is infinitely more scientific and conservative than the old method of financing New York city's improvements, and is also more scientific, though less conservative, than the "Pay-as-you-go" policy adopted in 1914. It is something like the difference between the national policies

adopted by the belligerents in this war. England has been paying all of the interest on her debt and about 12% of her share of the actual cost of the war out of taxation. Germany, until recently at least, was not paying out of her income from taxation any of the cost of the war, nor even interest on her huge war debt, trusting to collect these enormous sums from the indemnities paid by her defeated enemies, which expectation will Lever be realized so long as we have men who can bear arms and fight. The United States, however, it is estimated, will pay out of taxation somewhat over 40% of the actual cash expenditures for the first year of war, exclusive of the loans to our Allies, and President Wilson has intimated that he hoped to pay 40% of the cost of the war in this manner.

Because we want to see New York conservative-not merely scientific, I hope that when conditions shall have returned to normal, it will again go beyond the bare amortization of non-revenue-producing improvements within their life, and either pay out of its income from taxation a substantial portion of these expenditures which do not bring in revenue, or else go without-at least until the city valuations of property give it a respectable debt margin, not a mere 1% or 2% of its outstanding debt.

THE NEED FOR A MUNICIPAL PROGRAM1

HOWARD LEE MCBAIN, Professor of Municipal Science and Administration, Columbia University: It is needless to dwell upon the manifest disadvantages of a federal system of government in a time of unusual national stress. In the conduct of war there is no need that is more compelling than the need for centralization of authority. Especially is this true under the conditions of modern warfare, which affect the normal courses of labor, of industry, and of finance to a degree hitherto unprecedented in times of war. We have reached perchance only the early stage of what may prove to be an enormous dislocation and temporary redirection of these normal

courses.

Whether our present stage along this route be early or late, we have thus far traveled happily if, indeed, this word may be used at all in such connection. We have witnessed the exercise of undreamed-of powers by Congress; and, with the exception of the silly contest over the draft act, we have been spared those judicial battles over questions of constitutionality with which we in this country are so familiar. We have witnessed on the part of state and local governments a degree of co-operation with the national government that has, with few exceptions, been little short of marvelous. As the days of our great task unroll, the necessity for this co-operation will increase. It will increase, moreover, as the strain of the war itself becomes heavier and more personal among us, with the inevitable concomitant of some discontent and perhaps some additional need for coercion. In spite of this fact, in spite also of the large measure of legal autonomy which our states enjoy, and in spite of the fact that in a number of states our cities in turn enjoy a large measure of legal independence

1Discussion at the National Conference on War Economy, June 6, 1918.

from control by their state governments, I think we have reason to believe that hearty co-operation will be generally and generously given.

What our cities need-and I direct myself especially to these important spending units of our government-is not coercion but a program. And this program should be supplied and supervised by the national government.

Already, of course, the Capital Issues Committee is supplying this program in part. In respect to the activities of this committee I can naturally add little to what Mr. Warburg has so interestingly and lucidly described. I venture merely to express the hope that the Capital Issues Committee will, as I believe it should, develop far beyond its restrictive activities into a constructive and directional agency of great significance and value.

I believe that it would also be wise for the national government to set up co-operative supervision over municipal tax budgets. It is true that in the matter of budgets many cities of this country have nothing to learn from Congress and much that they might profitably teach. It is true also that no city in this country raises revenue by income taxes, now the principal source of national revenue; and that the national government does not use the general property tax, the principal source of municipal revenue. It is equally true, however, that, with national taxes mounting ever higher for the achievement of our now supreme purpose of victory by the sword, municipal taxes should be kept at the lowest possible point. The scrutinizing of innumerable municipal budgets would be an onerous task at best, but it would not be so onerous as many might suppose. A large part of our municipal expenditures are in practical effect, if not in law, in the nature of fixed charges. Only those items involving proposed extensions of service or wholly new services would need to be passed upon. And here again there would be the opportunity for constructive suggestion in the matter of activities peculiarly related to war problems that ought to be organized upon something approximating a national basis. Finally, and perhaps most important of all, the cities of the country ought to be utilized to the utmost in the task of demobilizing the army and restoring the industries of the country to a peace footing. The magnitude of this task no man can now assess. It would be no mean undertaking even if it were begun tomorrow; it may be colossal beyond imagination ere it is begun. It is in many ways far easier for a people to shift from a peace to a war footing than it is to reverse the action. In the one case there is the practical stimulus of government contracts, of government service, of government control; and there is spiritual stimulus of patriotism called to its highest opportunity for concrete expression. In the other, reliance must be placed largely upon individual enterprise acting under more or less normal economic laws. The government can dislocate industry for war purposes by direct action; the government can relocate industry for peace purposes only by indirection.

Now the cities of this country can be used as an important agency in solving the problems of the immediate after-war period. They may and ought to be mobilized to take their part in the work of demobilization