to the utmost of their ability, we shall have taken a long stride toward winning the war.

CAPITAL ISSUES COMMITTEE OF THE FEDERAL RESERVE BOARD-SUMMARY OF ISSUES ACTED UPON JANUARY 12 TO MAY 17, 1918.

Public

Municipal Utility Industrial Total Amount considered....$86,878,512 $172,069,605 $219,510,269 $478,458,386 Amount disapproved... 19,791,665 6,000,000 39,900,000 65,691,665 Aggregate approved....$67,086,847 $166,069,605 $179,610,269 $412,766,721 Less "refunding". 21,392,312 125,860,284 111,411,900 258,664,496

......

THE PAY-AS-YOU-GO POLICY IN NEW YORK CITY1

T

CHARLES L. CRAIG

Controller of the City of New York

HE so-called "Pay-as-you-go" policy for the City of New York, which has been practically abolished by recent legislation, can be understood only in the light of conditions existing prior to its adoption. This policy was first put into effect by resolutions adopted by the Board of Estimate and Apportionment in September 1914, and was afterwards made mandatory by an act of the legislature, passed in the early part of 1916.

On May 13, 1918, Governor Whitman signed a bill, which then became a law, suspending the operation of the previous statute for the period of the war and for one year thereafter. For all practical purposes this may be regarded as its total repeal.

From the earliest times it has been the policy of the City of New York to meet the expense of public improvements of an enduring character, such as public schools, hospitals, engine houses, police stations, correctional institutions, courts, water supply, docks and rapid transit, by the proceeds of the sale of long-term bonds, commonly known as corporate stock. The longest period for which such corporate stock has been permitted to be issued is fifty years. Provision is made for the payment of interest on such corporate stock, and its redemption at maturity, by including in the annual tax levy of each year a sum sufficient to pay the interest for that year and to provide a sinking fund which at maturity shall equal the par value of the corporate stock. In this manner the cost of such public improvements of an enduring character was spread over the life of the improvement, and those who enjoyed the benefits from year to year made payment therefor in the tax levy of such year.

In theory, at least, this was a just apportionment of the costs and benefits of such public improvements. The difficulty with this principle in actual practice was that long-term corporate stock

was issued for improvements which, in many instances, were of very brief duration. It has been conventional for writers upon this subject to accuse Tammany administrations of having bought perishable supplies with the proceeds of fifty-year corporate stock. The accusation has been made in such form as to imply that the practice in question was peculiar to Tammany administrations. Such, however, is not the case. Those who have proceeded in this manner are found in every administration, of whatever party or combination of parties it may consist. Under fusion or reform administrations, material of the most perishable and unenduring character has been acquired with the proceeds of fifty-year corporate stock. As late as the 17th of April, 1914, by unanimous vote of the fusion Board of Estimate and Apportionment, fiftyyear corporate stock was appropriated, the proceeds to be used for the removal of piles and foundations of the "Old Iron Pier" and for the removal of other piers and jetties from the beach fronting Seaside Park at Coney Island. This offense against the principles of sound finance was not actually confined to the use of fifty-year corporate stock for this purpose, but the appropriation was so diverted that it was substantially exhausted, leaving the principal work unfinished. The consequence was that the present Board, of Estimate and Apportionment four years later had to make an additional appropriation to do the work in question, the cost of which was met from a budgetary item.

Under the Low administration, horses, horse collars, cans and can carriers and like paraphernalia for the use of the street cleaning department, was purchased with the proceeds of long term corporate stock running mostly for forty years. This was for a ten years longer maturity than had been authorized by any prior administration. This practice was wholly discontinued in the second McClellan administration. For many years it was the practice in the dock department to meet the ordinary expenses of administration, maintenance and operation by the proceeds of long-term corporate stock. This practice also was discontinued in the second McClellan administration and a charter amendment was procured making it unlawful. During the Low administration a large amount of long-term corporate stock, running mostly for forty years, was authorized for the purpose of repaving the streets of the city. It is needless to say that the average duration of any pavement is substantially less than forty years. At the

present time about $58,000,000 of corporate stock of the City of New York issued for repaving is outstanding, practically all of which runs for forty or fifty years. In the Gaynor administration this practice was abandoned, and since that time corporate stock for repaving has not been issued for a greater period than ten years.

The extent of such practices and the constant criticism thereof, usually aimed at Tammany administrations as though they were the sole offenders, when in fact they have established reforms, must have materially affected the credit of the City of New York. When, therefore, the enormous issues of corporate stock necessitated for the Catskill water supply and the dual subway system were pressed upon the market from year to year, it was inevitable that a large portion of such sales should be undigested and the price materially affected. This has been reflected in the advancing interest rate prior to the outbreak of the present war in 1914, and also in a constantly lower level of prices for New York city corporate stock. These were some of the elements of the situation that existed when the so-called "Pay-as-you-go" policy was adopted in September 1914.

In its full scope and operation that policy prohibited the use of corporate stock for any period whatever for any of the various classes of public improvements that were not of a revenue-producing character. The pay-as-you-go policy implied that all such public improvements of whatever duration and for whatever purpose, if non-revenue-producing, were to be paid for by the taxes raised in the year in which the improvement was made.

The policy was put into effect by stages. In the first stage it was provided that such improvements authorized thereafter in 1914 and in 1915 should be financed one-quarter from the tax levy and three-quarters from fifteen-year serial bonds. Those authorized in 1916 were to be paid one-half from tax levy and one-half from serial bonds. Those authorized in 1917 were to be paid three-quarters from tax levy and one-quarter from fifteenyear serial bonds. Finally, all such improvements authorized after January 1, 1918, were to be paid out of the taxes of the year in which they were made.

Such was the situation that confronted the present administration in New York city on January 1, 1918. It was found in

marked tendency to increase the tax rate in order to meet the cost of necessary public improvements of a non-revenue-producing character. The city was confronted with an unfinished subway system, which, if the work had progressed according to the original program, with negligible exceptions, would have been completed and in operation. A vast amount of work and expense was required to complete the dual subway system. The carrying charges for interest and amortization upon the outlays required, and the deficits which the city is compelled to meet, were making a constantly increasing drain upon the city's resources and a material addition to its tax rate. In order for the city to have sufficient borrowing capacity to embark upon the dual subway enterprise, and to keep the tax rate within constitutional limits, there was resort to the device of increasing the assessed valuations of real estate all over the City of New York. This increase was carried to an extent that has evoked the criticism that in many instances the assessed valuation is greatly in excess of the actual value. The president of the department of taxes and assessments under the preceding administration officially stated to the state tax commissioners, representing the State Board of Equalization at Albany, that the assessments in the Borough of Manhattan in 1916 averaged 106% of the sales value of property sold, against which the assessments could be checked. Until such time as the population of the undeveloped portions of Brooklyn, Queens and Bronx boroughs had increased to a point where there was sufficient traffic to support the newly constructed dual subway lines, there was a constantly increasing peril that the assessed valuations in those boroughs would suffer a decrease from the lack of such operation and settlement.

To diminish the deficits that the city has to meet under the dual subway operation, it is necessary that the population of these three boroughs in particular be speedily increased so as to provide revenues for the new subway lines. Any increase in the tax rate in those boroughs was a distinct check upon private improvements and increase in population; and operated to defeat the objective that the city must attain to carry the dual subway system. The tax rate in Queens for 1918 was $2.56, except for a special act of the legislature which became a law the day before the rate was fixed and permitted a part of the tax to be deferred to a later year,