REAL ESTATE
AND
BUILDERS
NEW YORK, MAY 17, 1913
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I 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 II--------
By HENRY BRUERE, Directot Bureau of Municipal Research,
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ONE of the hardest problems con¬
fronting the next administration
will be how to provide necessary schools
and other improvements without increas¬
ing the ta.x rate to the point of public
revolt.
The next five years, wheii corporate
stock budgets will deal with thousands
instead of millions as heretofore, may
profitably be given to intensive city plan¬
ning and to the development of a new
program of public financing. Sooner or
later the city will have power to exercise
the right of excess condemnation in ac¬
quiring land for park and building pur¬
poses. It will have the power to take
back into the city treasury a part of the
enhanced value of real estate which re¬
sults from the construction of important
public works.
German Experience.
Practically every city in Germany has
for years been in the position in which
New York now finds itself. There com¬
parative poverty restrains cities from in¬
curring great indebtedness. At the same
time the growth of population and the
pressure of commercial demands is gen¬
erally compelling physical reconstruction
and the provision of modern public
works. But German cities, accustomed
to look at public questions from a public
interest rather than from a private in¬
terest standpoint have found a solution
for their financial perplexities. Last year
the city of Dortmund (215,000 popula¬
tion) found it necessary to build a new
thoroughfare through the old part of the
city, whose narrow, irregular streets
were congested with traffic. The gross
cost of the improvement was Mks, 5,875,-
000 ($1,468,750). The city exercised
its power of excess condemnation and
bought not only the property required
for the thoroughfare, but the adjoining
property, whose value has been increased
as the result of the opening of the street.
The city reported last fall that the pros¬
pective and surely to be realized return
from the sale of property abutting on
the thoroughfare and not required for its
widening would be Mks, 5,700,000
($1,425,000), making the net cost of the
most important public improvement ever
executed by the city, Mks. 175,000 ($43,-
750),
Fortunes Once in Real Estate.
Every informed taxpayer knows of the
fortunes that were made in New York
City at the time of the opening of the
present subway. I have been told by one
of the largest operators in New York
realty that within a few days after the
opening of the present subway he sold
lots for $1,200,000 which had cost him
$250,000 before the period of subway land
speculation. Unquestionably, this op¬
erator was entitled to some profit in re¬
turn for his foresight and the possible
fn this article Mr. Bruere brlnxs out the
startling fact that, through Improvident
fiscal management, the foremost city In
America aad the richest municipality In the
world has virtually exhausted Its constitu¬
tional borrowing power and must loolt for
new ways of financing public worlis. On
March 31, the net funded debt of New York
City amounted to 7.Of per cent, ot the
assessed valuation of the real estate In the
city, while contract and other liabilities In¬
creased the total Indebtedness, exclusive of
self-sustaining bonds, to 9. If per cent, of
the assessed valuation. As ihe debt in¬
curring power of the city, e.xcept for certain
Income producing enterprises (watersupply,
dcKks, subways) is limited to 10 percent, of
the assessed valuation of the real estate in
the city; as the current valuation Is fully on
a par with "market value," and as this
value can not be expected to Increase rapidly
la the near future. It will be seen that ihe
traditional fiscal policy of the city is no
longer adequate to meet ihe necessity for
expansion of municipal functions occasion¬
ed by ihe 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 appears today, Is the
second of a series of five written by Mr.
Bruere at the request of Ihe Record and
Guide, tbe purpose of the series being (I) to
discover why taxes are Increasing out of
proportion to the growth of population and
(2) to suggest available remedies.
hazard of his investment, but even he
would admit that his gain resulted more
from the enterprise of the community
than it did from the employment of his
own abilities,
1913 Bond Sale.
On May 20th New York City will hold
its annual corporate stock sale. It pro¬
poses to market $45,000,000 of bonds,
$25,000,000 of corporate stock for various
municipal purposes, and $20,000,000 for
extension of the water supply. The city
agrees to pay interest at the rate of 4%
per cent, per annum for fifty years on
these bonds. The last issue of 4% per
cent, bonds was on February 14, 1908,
just after the 1907 panic. In November
of that year $12,000,000 of 4 per cent,
bonds were sold to the public and 4 per
cent, ruled until 1910, when the rate was
increased to 4% per cent. In May of
last year the city sold $65,000,000 AH per
cent, bonds at an average price of $100,-
747.
The present increased interest rate
does not mean that the city's credit has
been impaired. It means merely that the
market is over-supplied with New York
City bonds. This is clearly indicated by
the current market quotations on New
York City bonds. On May 2d, according
to market quotations in the New York
Times, the only New York City cor¬
porate stocks selling above par were the
four and one-half per cents issued in
1908, the bid price being 101^.
The four and one-half per cents cor¬
porate stock issued during the present
administration were quoted at 95^.
The four per cents issued in 1909
were bid for at 92%. The four per cents
issued in 1906 were bid for at 90.
The three and one-half per cents issued
in 1904 were bid for at 80%. Corporate
stock of the city cannot be issued below
par. So investors in earlier issues are
disadvantaged by each succeeding sale.
For each new issue of bonds is likely to
force down the prices of preceding issues,
particularly those bearing a lower inter¬
est rate.
Causes of Depressed Bond Prices.
On the failure of the bond sale of June
8, 1909, the Bureau of Municipal Research
sought to learn the efifect on prices bid,
of such conditions as frequency of sales,
uncertainty of limit, volume of outstand¬
ing bonds, etc. Letters containing twelve
questions were written to all the bidders
at the sale. These included most of the
important bond houses of the city.
In the replies received frequency of
bond issues was repeatedly mentioned as
the dominating factor in determining the
reception of proposed bond issues by the
investing puljlic. One house wrote:
"The question resolves itself almost en¬
tirely into one of supply and demand,
with the assurance that for a definite
number of years ahead New York City
will supply as many bonds as the market
can absorb,"
Table VII,—Corporate Stock Sales to Public, 1908-1913.
(E.xclusive of Sales to Sinking Funds.)
,â– ----------------------Distribution----------------------^
Ma- Average Various
Date of turlty. Price Amount. Rate, Municipal AVater, Rapid Library-
Sale- Realized. Purposes. Transit,
Feb. 14, 08 1057 $104.22 $47,0011,0(111 4%% .$37„50U,(IOO $0,1X10.(100 ,$2,51 lll,0lill $1 .(klo.lHIO
Nov- 2:!, '08 1958 102.385 12.nilll,(lll0 4% 7,(1(10,000 4,(1(1(1,0(10 7,"'>l 1,110(1 2.511,(1111)
Mar, 2, '09 1958 101,57 lll,(.(lll.0ll(l 4% 7,00U,(l0n 2.0011,11(111 7,5(1,(11111 2,"">ll,ll(ll)
June 8, '09 19,59 100.71 ,-W,llilll,IHlll 4% 24,(100,01111 lIl.dlKl.OIIO 3,2(10,000 ,800 11110
Dec, 10, '09 1959 100..34 12..".lKl.lllill 4% 6,0(10,(1(10 t;,IKlll,(illl) ....... ,10(1,1111(1
Mar, 21,'10 19,30-60 101.28 51 I.I UK (.mil I 414% :i2,n00,0(io IS.IKIiMKili O.Odii.iKIO .......
Jan, 24, '11 1960 100,90 (ll).llllll.llllll 4%% .30,000,000 21,.-i(NI,lillll s,.-.(lli.lll«l .......
May 7,'12 1062 100,747 ori,iliiii,iiii(i 414% 25,000,00(1 2(l,iiiKi,iiliO 2ii.iiiiii,iiuiJ .......
Totals ..............$294,500,000 $168,500,000 $81,300,000 $41,700,000 $2,800,000
Note : Increase in interest rate and decrease in average prices realized by the city.