REAL   ESTATE







BUILDERS





AND







NEW YORK, MAY 10/1913





THE BIGGEST MUNICIPAL DEBT IN THE WORLD







Gross  Funded Debt of New York City Exceeds a Billion — Borrowing Limit
Virtually Reached—New Methods of Financing Public Works Must Be Found.

---------Article II, Part I---------

By HENRY  BRUERE. Director, Bureau of Municipal Research.                                                            |

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NEW YORK is the richest municipal
corporation in the world, but it is
also, and perhaps for this reason, the
most heavily indebted. Measured in
terms of population, the outstanding
gross indebtedness of the city on March
31, 1913, was appro.ximately $225 per
capita.

Taxpayers of today are paying for pub¬
lic works bequeathed to thera by preced¬
ing generations of ta.xpayers, and are
bearing their share of the cost of new
undertakings which are to equip New
York City for present convenience and
future growth.

The first article in this series showed
that the major responsibility for the in¬
creasing cost of government is attributa¬
ble to the growth of appropriations for
interest and redemption of the city debt
in the annual ta.x budget. This fact fully
realized makes consideration of the pres¬
ent debt of the city, the method of its
incurring, and the future use of the city's
"faith and credit" of vast importance to
taxpayers.

The interest, sinking fund and redemp¬
tion items included in the city budget
for 1913 amounted to $54,977,381.34.
These items have grown from $40,454,-
772.86 in 1908, or 35.9 per cent. The
total increase in the entire budget in
this time was $49,139,174.99, or only 3.38
times the increase in city debt charges.

All sinking fund and interest payments
on outstanding bonds are not made from
budget appropriations. Dock, water and
subway revenues, for example, are used
for interest and sinking funds for dock,
water and subway bonds. On the other
hand, the entire appropriation for "debt
service" purposes does not relate to the
permanent debt of the city. In 1913,
$9,869,064.79 was included in this appro¬
priation for interest and redemption of
short term bonds. Interest and sinking
fund installments for permanent debt
have increased from $29,751,201.62 in
1908 to $45,108,316.55 in 1913, or 51.62
per cent. Since 1911 there has been a
diminution in the interest charges for
short term indebtedness due to the
semi-annual collection of taxes inaug¬
urated in that year on the initiative of
Comptroller Prendergast. It is esti¬
mated that by collecting taxes in May
as well as in October, and thus reducing
the amounts borrowed in anticipation of
tax collection, $1,500,000 in interest is
saved annually.

Table IV.—Appropriations for City Pur¬
poses Which Have Increased More
Than $1,000,000 During the Period
1903-1913.

Interest on city debt..............$25,177.1f5n.nn

Department  of  education..........  15,14.3,821).10

Redemption   of   the   city   debt   and

sinking   fund   installments.......    6,in(j,14.5..'50

Police   Department    ..............    5,171..301.04

Flre   Department   ................    3,727.64.5.12

Water   Department    ..............  •2,0,58!5.30 G3

Department ot docks and terries..  t2,944,677.57





ta tfils article Mr. Bruere brings out tlie
startllae fact tliat, ttirougli Improvident
fiscal manasement, tlie foremost city In
America and the richest municipality In the
world has virtually exhausted Its consiliw
tional borrowing power aad must look for
new ways of financing public works. On
March 31, the net funded debt of New York
City amounted to 7.01 per cent, of tbe
assessed valuation of the real estate In the
city, while contract aad other liabilities In¬
creased the total Indebtedness, exclusive of
self-sustaining bonds, to 9.11 per cent, of
the assessed valuation. As the debt In¬
curring power of the city, except for certain
Income producing enterprises (watersupply,
docks, subways) Is limited to 10 per cent, of
the assessed valuation of the real estate In
the city; as tbe current valuation Is fully on
a par with '•market value,** and as this
value can not be expected to Increase rapidly
In the near future. It will be seen that tbe
traditional fiscal policy of ihe city Is no
longer adequate to meet the necessity for
expansion of municipal functions occasion¬
ed by the tremendous growth of population,
a growth which has now attained a rate of
about 200,000 a year. Mr. Bruere's article
points out the choice of fiscal devices open
to the city for taking care of Its expanding
activities. The present article, of which ihe
second Installment will appear next week.
Is the second of a series of five written by
Mr. Bruere at the request of Ihe Hecord and
Guide, the purpose of tbe series being (/) to
discover why taxes are Increasing out of
proportion to ihe growth of population and
(2)   io  suggest  available  remedies.





Department   ot   street   cleaning....    2,348,404.26

Health   Department   ..............    2.331,828.112

Deficiency   in   taxes   ..............   t2,300,000.00

Payments to charitable institutions    2,107,723.06

Department  ot  public  charities___    1,810,316.22

Department   of   parks.............   §1,318,071.!)8

President    Borough ot Queens.....    1,068,108.78





•This takes no account ot expenditures in the
borough of Brooklyn from revenues of the de¬
partment.

fThis flgure represents not an increase in ex¬
penditures, but a transfer to the tax budget
of items formerly met by sales of corporate
stock.

tWas not Included in the budget but was in¬
cluded, nevertheless, in the computation of the
tax   levy.

§ExcIudes institutions, museums and care of
public   library   buildings.

What the City Debt Is.

Not until 1909 could any one answer
the question "What Is the City Debt?"
In that year, as a by-product of Comp¬
troller Metz' opposition to the approval
of contracts for the Fourth Avenue sub¬
way, the Court of Appeals determined,
after a long hearing before Referee Ben¬
jamin F. Tracy, a multitude of questions
as to what was to be included in comput¬
ing tlie city debt and what was to be
excluded, which theretofore had been
matters of doubt or confusion. Many of
these questions were framed as the re¬
sult of investigation of the city debt by
the Bureau of Municipal Research for
which four of the principal banking
houses of the city provided the funds.
Several    questions    which    are    still    in





doubt were not answered by the Court of
Appeals, because the litigants either
failed to present the facts to the Court
in these respects or failed to present
them with sufficient clarity. It cannot be
said, therefore, that all the questions in¬
volved in determining the constitutional
indebtedness of the city are now settled,
but it can be said that the margin of un¬
certainty has been brought down to a
very narrow limit. Some of these ques¬
tions will be referred to again.

New York City's billion dollar debt
does not include current liabilities to be
paid out of current taxes or other rev¬
enues. It represents in major part the
following classes of indebtedness:

1.   Corporate stock and other long term
bonds issued to provide funds for future
improvements.

2.   Assessment bonds issued by the city
to provide funds for public improve¬
ments, the cost of which are later to be
defrayed either in whole or major part
by assessment on properties enefited.
The holders of these bonds have recourse
to the general credit of the city, and are
not limited to any special fund created
by the payment of assessment. Assess¬
ment bonds, therefore, must be included
in the city's constitutional indebtedness.

3.   Contracts chargeable against corpor¬
ate stock or assessment bond funds, less
cash balances in particular funds avail¬
able for their liquidation.

4.   Revenue bonds outstanding for five
years.

5.   Liability for lands taken by con¬
demnation; judgments and open market
orders.

The 10 Per Cent. Constitutional
Limitation.

These classes of debt make up the total
of the city's $1,137,211,853.77 gross fund¬
ed debt as of March 31, 1913. The con¬
stitution says that the municipality may
not become indebted in excess of 10 per
cent, of the assessed valuation of its tax¬
able real estate. The assessed valuation
of the taxable real estate for 1913 was
$8,006,647,860, and 10 per cent,, therefore,
was $800,664,786. Various constitutional
amendments and court interpretations,
however, permit certain deductions to be
made from the gross funded indebted¬
ness in computing the so-called "debt
limit." Thus, there are deducted $19,-
698,222.48 of county bonds issued prior to
consolidation on the theory that such
obligations should not embarrass the
greater city in the extension of its im¬
provements. Likewise subtracted are
$145,512,393.60 for water bonds on the
theory that these bonds will be redeemed
out of the revenues derived from the sale
of water and $117,425,778.73 for rapid
transit and dock bonds declared by the
Appellate Division to be self-supporting
under the constitutional amendment of
1909.  These deductions foot up to a to-