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Real estate record and builders' guide: [v. 91, no. 2356]: May 10, 1913

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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. | ■■■■■■■■■liiM^^ . . •ligiilBllllilllllllllllllllllllillSSillilB 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-