a term of years. The water bureau had to secure from the City Commission authorization for changes in policy, both for the sake of avoiding substantial annual deficits and of putting the department in order preparatory to the installation of a filter plant. For some ten years previously, no betterments had been made out of earnings. No reserve had been provided for depreciation or superseded property. All pipe extensions for years had been paid for from the proceeds of bonds, quite a number of which were refunded on maturity. The cumulative effect of this situation was that receipts had to be increased by about 35 per cent in order to meet all operating and maintenance expenses, all capital charges and, in the absence of a depreciation reserve, to provide pipe extensions and plant improvements of current prices equal to an average normal volume for the preceding 10 years. Milwaukee Financial policies in this city are quite different from those in most others. The city issues almost no bonds for plant investments. A bond issue of $300,000 in 1913 is the only issue since 1896. Extensions of distribution mains are paid for by assessment on property benefited, on the basis of the cost of laying a 6-inch main regardless of the size actually laid. In making ready for financing a filtration plant, the city in 1921 started the creation of a water fund through increasing its water rates within the city limits 55 per cent and those outside of the limits 663 per cent. The cost of the water works up to January 1, 1925, is $15,869,437.31, with a bonded debt of $120,000. Surplus earnings transferred to the general fund to date amount to $4,217,965, or $2,340,426.28 in excess of the amount raised by tax levy before the department was self-sustaining. Detroit The phenomenally rapid growth of this city recently required unusual extensions of all facilities as well as the installation of filters. It was necessary to adopt a new rate for metered water. This step was taken effectively in 1923 in connection with a 100 per cent meterage program adopted in 1915. The new rate schedule is intended to make the receipts equal to all disbursements for opera tion and maintenance expenses, interest and sinking fund charges, and a reasonable reserve for depreciation. City of New York The City of New York has one advantage over many others in that all bonds issued for water works purposes are left out of consideration when computing the legal borrowing capacity of the city. This exemption is the results of 10 years' effort to secure the needed legislation and amendment to the state constitution. There is no disadvantage to such exemption provided a municipally-owned water department is conducted on sound business lines. In 1922 New York had total water receipts of $16,297,450.37. Its total disbursements for operation, maintenance, bond interest, amortization and redemption of bonds amounted to $16,184,646.55. This means that with relatively low rates, averaging about $2.25 per person per year, the city has been able to install its Catskill water supply system at a cost of over $158,000,000 without increasing water rates. This situation is explainable partly because the Catskill supply did away with numerous pumping stations at ground water plants originally built by the City of Brooklyn, at which pumping charges are said to have approximated $10,000 per day. Benefit is also derived from comparative absence of pumping costs due to the gravity supply of the Croton system which was first put in service in 1842 and the original bonds for payment of which were retired years ago. New York issues 50-year bonds and this makes the sinking fund requirements less than is necessary for many cities which issue shorter term securities. Philadelphia The financing of substantial improvements for the Philadelphia water system has been a difficult question for many years. This is due partly to state laws restricting the borrowing capacity of the city which is obliged to secure a vote of the people for practically every issue of bonds. In 1915 there was an amendment to the state constitution permitting municipalities to exempt from calculations of borrowing capacity, such water bonds as could be supported by the net earnings of the Water Bureau, in accordance with due certification of such fact by the court. Water revenue bonds In Ohio and elsewhere there is authorization for issuing water revenue bonds, outside the normal limitation as to bonded indebtedness, provided net water revenues will sustain such issues. Summary The water works industry, in some localities, has been and is faced with serious difficulty in raising the capital necessary for extensions and betterments to maintain a desirable standard of service. In the long run, there is but one sure way out of that difficulty, whether the water plant be publicly or privately owned, and that is to increase the rates to cover the cost of the service. This is spoken of by some as the policy of "balancing the budget." Put in more homely terms "it is necessary to make the water consumers pay for what they get." How to put such a policy into effect for some publicly-owned water plants is a serious question, involving bonding capacity of the city and in some cases the creation of a water district, with bonding capacity independent of the cities and towns composing the district. LEGAL LIMITATIONS ON BONDED INDEBTEDNESS The demand for modern public utilities in the small, as well as the large, municipalities, has increased so rapidly that a summary of the state laws regulating the issuance of bonds for various purposes is of importance. In preparing a tabulation of these laws, the primary thought has been to set forth available records of the legal limitations on indebtedness, their relation to the issuance of water bonds, and to indicate the extent to which they may curtail water works improvements. In approximately one-fifth of the states, municipalities in seeking to make water works improvements face legal limitations placed upon bonding power. The great variation, however, in the different states indicates that no definitely basic principle in most instances has been observed in formulating the laws. Municipal extravagance perhaps established the need for regulatory laws; but unless the prescribed limitations are based upon STATE Alabama.. California.. Connecticut.... Delaware.. Florida.. Idaho... Illinois. Iowa.. Kansas.. Kentucky.. TABLE 50 Summary of laws as to allowable bond issues TABULAR SUMMARY OF AVAILABLE* LAWS AS TO ALLOWABLE BOND ISSUES, Towns under 6000, 5 per cent. Three per cent additional for waterworks, sewerage, gas, electric lighting plants, and street improvements. Towns of 6000 or more, also Gadsden, Ensley, Decatur and Albany, 7 per cent. Per cent unlimited for schoolhouses, waterworks, sewers, and street improvements, where cost of same, in whole or in part, is to be assessed against abutting properties. Cities of Sheffield and Tuscumbia excepted. Fifteen per cent for all purposes. For incorporated municipalities, 3 per cent. Water works Towns and municipalities, 5 per cent for all purposes. Permissible indebtedness of each city or town is con- Water works bonds may be issued in excess of the legal limits for other bonded indebtedness Limit for all purposes 5 per cent of assessed valuation. Municipalities, including water works, limited to 2 per cent of assessed valuation. For the purchase of water works, bonds may be issued against the utility. Such mortgage bonds bear no relation to 2 per cent limit. Towns of less than 10,000, 14 per cent of actual value of taxable property. Cities of 10,000 or over, by a majority vote, may issue bonds for water works, including existing indebtedness, to the amount of 5 per cent of assessed valuation. General bond limit, 15 per cent of assessed valuation. Towns of less than 15,000, additional 2 per cent for water works. Cities of over 15,000, limited only by vote of electors. Cities exceeding 15,000, 10 per cent of assessed valuation. Cities of less than 15,000, fourth class, 5 per cent; fifth and sixth classes, 3 per cent. In case of an emergency, water bonds may be issued in excess of above limits. * This record is the best available, but needs to be further checked, especially with reference to effect of charters of cities of different classes. STATE TABLE 50-Continued TABULAR SUMMARY OF AVAILABLE LAWS AS TO ALLOWABLE BOND ISSUES Louisiana.. Maine... General limit 10 per cent of assessed valuation. Bonds for any municipal improvements, running for a period not exceeding 10 years, unlimited. For all purposes, 5 per cent of assessed valuation. No general limit. Each municipal bond issue requires authorization by the General Assembly. Bonds in amount of 2 per cent of taxable basis, in addition to any other indebtedness limitation, may be issued by counties or municipalities for water or sewerage construction, upon order of State Board of Health. Massachusetts..... For water works, not in excess of 10 per cent of assessed Michigan.... Minnesota.. Mississippi..... Missouri.. Montana... New Mexico...... New York..... valuation. For water works, not in excess of 5 per cent of assessed valuation. Mortgage bonds against a utility may be issued beyond the 5 per cent limit. Detroit has a total debt limit of 15 per cent of assessed value. 2 per cent is the limit for water works. In general 10 per cent of assessed valuation. Many special acts for public utilities exist. Water works bonds in excess of 10 per cent of assessed valuation require special authorization. Legal limit of bonded indebtedness of any municipality for all purposes, 15 per cent of assessed valuation. General limit, 5 per cent of assessed valuation. For water works and certain other public utilities, towns under 30,000, not to exceed 10 per cent of assessed valuation. By affirmative vote of 4/7 of voters, cities of 75,000 and over may issue water works bonds to the extent of 20 per cent of taxable property. General limit, 3 per cent of taxable valuation. and sewerage bonds, apparently unlimited. General limit, 13 per cent of actual value of taxable property. Water and sewerage bonds, 4 per cent of assessed valuation. Water General limit, 10 per cent of assessed valuation. Water works bonds unrestricted. North Carolina. . . Total indebtedness limited to 8 per cent of assessed valuation. Water works and electric light improvements not counted in arriving at net indebtedness. North Dakota..... Five per cent of assessed valuation for all purposes, except that incorporated cities, by a three-fourth vote of resident property holders, may increase indebtedness to 8 per cent of assessed valuation. *This record is the best available, but needs to be further checked, especially with reference to the effect of charters of different classes. |