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by the Master at 13.9 per cent (on straight-line basis the Master found that the accrued depreciation would have amounted to 31.2 per cent which he adjudged erroneous and incompatible with the observed excellence of the plant); and in the Denver case, with a property forty-four years old, about 12.7 per cent. The latter is shown in greater detail in table 49.

CHAPTER XXIII

FINANCIAL REQUIREMENTS OF WATER WORKS FOR PROVIDING

BETTERMENTS AND EXTENSIONS

Good service at fair rates is the secret of success in water works enterprises. To provide good service, extensions and improvements must be made continually. The financing of these, and of renewals deferred during the great war, has been very difficult. It has involved careful study, resourcefulness, and important work in molding public opinion.

Privately owned water plants are now generally under the control of state regulatory commissions, subject to the final jurisdiction of the Courts. These commissions pass upon problems of service, rates, and security issues. Credit determines borrowing capacity. Rates must be maintained to provide credit for financing new construction work. Rates producing less revenue than needed for maintaining sound credit usually involve loss in return to the property and inadequate service to the public.

The above principles relating to privately owned plants are so well known as to be axiomatic to many water works men. Reference is here made to the section on Valuation and Rate-making.

There are publicly owned water works needing improvements in many cities where it is difficult to secure needed funds, for one reason or another. To water works men facing such circumstances it is of interest to note the experiences of a few cities which have made progress in overcoming inadequate financial arrangements in order to proceed with needed betterments.

Buffalo

The Water Bureau of Buffalo has had a number of interesting experiences some of which relate to difficulties which ought not to exist with any city-owned plant. Results accomplished in putting the water department on a sounder financial basis offer a number of items worthy of note. In 1920 rising prices for labor and materials. accentuated a condition which had been becoming acute through

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

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