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Vol. LXXXVIII
OCTOBER 21, 1911
No. 2275
INFLATED ASSESSMENTS AND THE RISING BUDGET.
City Expenditures GroAV Unavoidably in Geometrical Ratio, Compared with
Population—Tax Resources Already Exhausted—Other Means of income.
THE Record and Guide publisher this
week a number of sales recorded
during the year in which the price ob¬
tained waa lower than the tax assess¬
ment. These instances of over-assessment
have reference only to Manhattan, the
borough which pays the largest share of
the tax levy. They have been collected
in a more or less haphazard way. In¬
deed, most of them have been supplied by
certain brokers, who, alarmed by the
prospect of a $215,000,000 budget, have
asked the Record and Guide to urge the
present high assessments and ths uimlii-
ished current earning power of real es¬
tate as compelling reasons for economy
in the city administration. The list of
examples of over-assessment here brought
together is therefore by no means com¬
plete. Yet is leaves no room to doubt
that the time has come for a readjust¬
ment of the fiscal policy of the city.
The Record and Guide is too well con¬
vinced of the general efficiency of the
Tax Department, which has been of late
years thoroughly reorganized by Presi¬
dent Purdy, to assume that so many in¬
stances of over-assessment in so many
different tax districts as are here re¬
corded can be the result of bungling ap¬
praisals. On the contrary, there is reason
to believe that the majority of the prop¬
erties in question receded in value be¬
tween the time the assessments were laid
and the time the sales took place. If this
assumption is correct, the conclusion is
unavoidable that tax assessments in all
but the growing sections of town are in¬
flated to a degree which leaves no margin
for the decline in values normal to after-
panic years.
The .Tax Department, as a matter of
fact, is not responsible for the existing
high level of assessments. The responsi¬
bility belongs to the Board of Estimate,
The Board of Estimate fixes the expendi¬
tures of the city and it is the business
of the Tax Department, after ascertain¬
ing what proportion of the expenditures
must be raised by taxation, to base the
tax levy on this calculation. The depart¬
ment has only two ways of increasing the
levy—by advancing the tax rate and by
advancing the assessed valuations. For
fiscal as well as political reasons, the
bulk of the yearly increases have been
met through advanced assessments. The
city's borrowing power has for years been
so nearly exhausted under the constitu¬
tional limitation which restricts its debt
to 10 per cent, of its total assessed real
estate valuation that annual increases of
the total assessment has been indispen¬
sable.
Emergeney ANses.fmeufs.
Ever since the Greater City came into
existence, the assessment increases have
been extremely heavy, necessitated, on
one hand, by an expanding debt, and, on
the other, by an expanding budget. The
increases have heen out of all proportion
to the growth of population. Neverthe¬
less, they have not heen sufficient to meet
the city's debt creating requirements, and
the State constitution has been modified
several times to enable the city to bor¬
row in excess of 10 per cent, of the tax
valuation on real estate. How far we
have advanced in the way of inflating as¬
sessments may be seen from a brief sur¬
vey of the city's fiscal history since con-
sohdation.
The report of the commission of 1,S96,
which framed the Greater New York
Charter, declared that the constitutional
limitation on the debt creating power of
cities then in force in the State was "too
large to be in itself an adequate restric-
tmn. The limitation in question was
contained in Section 10 of Article VIII
of the State constitution. It provided
that no county or city should be allowed
to become indebted for any purpose or
in any manner to an amount which in¬
cluding existing indebtedness, should ex¬
ceed 10 per cent, of the assessed rea! es¬
tate of the county or city subject to tax¬
ation as it appeared hy the assessment
rolls of the county or city on the last
assessment for State or county taxes. To
guard against extravagance under this
provision the commission "devised and
imposed" a number of additional "checks
upon the debt creating power of the
Greater City."
However, the charter revision commis¬
sion of I'JOO found it necessary to recom¬
mend a change in the constitution, ex¬
cluding from the 10 per cent, restriction
"indebtedness hereafter to be incurred by
the city of New York for purposes of
water supply. The justification for this
exception is the profit incidental to mu¬
nicipal ownership of the water supply."
The amendment was adopted, and water
bonds issued since Jan, 1, 1901, are not
included in the debt as computed with
reference to the borrowing power of the
city,
But before any relief could he obtained
from this source, the borrowing power
had been so nearly exhausted that Mayor
Low in 1002 was constrained to advocate
assessing real estate at "full value." If
this were done, he said, "the city will
have to raise less money by taxation than
now, and at the same time it will be
able to carry forward its public work as
the needs of the hour require. That is
to say, the city ought to have and can
have at same time a smaller tax levy
and a larger working capital. Unless this
policy IS pursued, the city must either
forego for the time being the great pub¬
lic improvements that it demands or con¬
tinue to pinch itself indefinitely as to
Its current needs." Accordingly the as¬
sessed valuation was raised a year later
by :i;i,400,000,000.
Budget Ttndeuoies.
Nevertheless, the charter revision com¬
mission of 1007 found it necessary to
recommend that the "constitution of the
State be so amended as to exclude from
the computation of the city's debt limit
all bonds or evidences of indebtedness
issued for purposes which produce reve¬
nues in excess of their maintenance
charges." Acting on- this recommenda¬
tion, the Legislature exempted rapid
transit and other "self-sustaining" bonds
ynder a law which went into effect in
During the first decade of its existence,
the Greater city advanced its real estate
valuation 116 per cent., as against a
growth of about 37 per cent, in popula¬
tion. Nevertheless, the Board of Esti¬
mate put into effect, through the Tax
Department, another emergency assess¬
ment increase of nearly a billion dollars
in 1911.
Compared i\ith the extraordinary as¬
sessment increase of this year, the in¬
crease for 1912 is moderate. As the
budget has not yet heen made up, the
tax rate for the coming year is unknown.
However, it is likely to be higher than
that for 1011, and if the budget turns out
to he as large as some members of the
Board of Estimate have intimated, the
tax rate may reach 2 per cent.
It is evident that the budget will be
very considerably increased, Sound fin-
lance requires the insertion of important
items which have heretofore been provided
for by issues of corporate stock and
which have, consequently, gone to swell
the public debt. Under the system of
bookkeeping recently introduced it is pos¬
sible for the Budget Committee of the
Board of Estimate to distinguish operat¬
ing and maintenance expenses from pay¬
ments on account of capital assets in the
demands for appropriations submitted by
department heads. The Budget Commit¬
tee this year consists of Borough Presi¬
dent McAneny, Comptroller Prendergast
and President IVIitchel of the Board of
Aldermen. Each of these gentlemen is
known to be in favor of carrying out the
principles of the new system of municipal
hookkeeping and of putting an end to the
folly of defraying any part of the current
expenses with borrowed money.
It is understood, for example, that next
year's budget will contain an item of sev¬
eral millions for repairing street pave¬
ments in Manhattan. Such repairs were
under the old system of bookkeeping
charged to corporate stock. T^ie stock
ran for long terms, generally for flfty
years. The average life of a street pave¬
ment in Manhattan, however, is only ten
or twelve years. The practice of. charg¬
ing paving repairs to corporate stock is
responsible for no small share of our
huge public debt. We are paying the in¬
terest on and are reducing the principal
of the accumulated loans -incurred during
half a century of paving work, the bulli
of which has disappeared through the
ordinary wear ot traffic.
In advance of any statement by the
Budget Committee it is impossible to say
how many new items of this kind will toe
inserted in the budget or what total of
expenditure they will call for, but there
is every prospect that they will enlarge
the budget materially. The new system of
booklieeping will also require some merely
apparent additions to the budget. Thus,
the Borough Presidents will he called upon
to pay over to the Department of Water
Supply, Gas and Electricity a good-sized
sum in the aggregate for water used in
public buildings. This practice, though
introduced in the interest of proper ac¬
counting, means only that the city will
take money out of one pocket and put it
in another.
There remain two important sources of
increase in the budget, namely, mandatory
legislation and the natural growth of the
city. It is too early to attempt to esti¬
mate what the increase will be from these
sources. The purpose of this article is
served by explaining in a general way the
effect which the new system of account¬
ing will have on the budget and by mak¬
ing clear the fact that the growth of the
city demands a disproportionately large
budget increase.
There was a more or less general feel¬
ing of disappointment last October among
taxpayers when it was found that the in¬
troduction of an improved system of ac¬
counting had not brought ahout a reduc¬
tion in the budget. The disappointment
has not been allayed by the knowledge
that the coming .budget is likely to exceed
this year's by a wide margin. As a mat¬
ter of fact, the new accounting has af¬
fected all that was reasonably expected
of it. One thing it has done is to trans¬
fer to the budget items of expenditure
that were formerly charged to the public
debt. If this method of charging had
been followed in the past, we should not
have had in the budget for 1911 an item
of some $29,-4OI>,000 for interest on the
city debt and another item of -'{; 17,CO0,01)0
for redemption of deht. These two items
constituted nearly one-third of the entire
budget 'and a very large part of the taxes
levied on their account went to pay for
services which the present generation of
taxpayers has not enjoyed.
.Vbiliiy fo Pay.
That the growth of the city requires a
disproportionately heavy increase of ex¬
penditure is another fact which should
be borne in mind. It is not uncommon
to hear criticisms of the budget on the
ground that its percentage of increase has
been larger than that of the popuiat-ion.
The idea behind this criticism is that the
budget has increased faster than the abil¬
ity of lhe population to pay taxes. How¬
ever, the growth of population is not a
valid index to increase of value of taxable
propertj', notably real estate. The value
of real estate depends upon the purchas¬
ing power of the population. But there
is no accurate way of gauging that
power. Every budget expenditure must
therefore be judged on its individual mer¬
its and the flnal arbiter is public opinion.
It is not difficult to see why the budget
should increase in a geometrical ratio
compared with the growth of population.
We have a good illustration just now in