4. Debt limit.—The taxpayer has made felt his desire to limit public expenditures in a number of ways. Among these are the requiring of a popular vote to authorize bond issues, the endowing of the mayors of cities with the veto power, the establishing of special boards of control such as the New York City Board of Estimate and Apportionment, statu tory debt limits, and now, more recently, various limi tations inserted in the state constitutions beyond the reach of legislatures. In Iowa, a debt limit of 5 per cent of the last preceding assessed valuations has been established. In Alabama, counties cannot exceed per cent of assessed values. Towns of less than 6,000 population are limited to 5 per cent, and larger places to 7 per cent. The limit is 2 per cent of assessed values in Indiana, in _Missouri 5 per cent, in Penn sylvania 7 per cent, and in Ohio 8 per cent. In Massachusetts, cities cannot exceed per cent and towns 3 per cent of the average assessed value of tax able property for the preceding three years. A 10 per cent limit is set in New York, a 15 per cent limit in New Jersey, Kansas and California, an 18 per cent limit in Virginia, and a 30 per cent limit in Kansas. The variation of these ratios shows that no very clear ideas yet dominate legislation, and that where assessed values are involved, it is on an ex ceedingly shaky and amateurish basis.
In the calculation of debt limits, it is customary to exempt sinking funds, water debts, and special as sessment bonds which do not permit recourse against the municipality. The Massachusetts law permits electric light bonds to be issued in excess of the debt limit provided they are not over 5 per cent of the valuation for towns, and not over 2% per cent of the last assessed value for cities. Playground bonds may be issued also in excess, provided they do not exceed % of 1 per cent of the last assessed values. In a number of states having constitutional debt limit provisions, the law has been circumvented by the crea tion of special road, water, light and other separate districts.
5. Term.—The term of municipal bonds should not outrun the life of the improvements for which they are issued. The Massachusetts regulations are thus summarized by William L. Raymond, in his book "American and Foreign Investment Bonds": In the Massachusetts laws, the length of time which bonds may run is based, as far as is practicable, on the permanence of the work for which the money is spent. For instance, bonds issued for the purchase of land for parks or play grounds give the city a permanent asset. Bonds issued even for school-buildings alone give the city property with a life probably of at least twenty years ; whereas bonds issued for sidewalks may give the municipality property which will have to be replaced or rebuilt within a short time. The
limitation to ten years of bonds issued for cemetery purposes is based probably on the minimum estimate of the length of time the land will be available for cemetery purposes.
6. many states it is necessary to authorize bond issues by an election held in the community. This is especially the case when the is sue exceeds a given minimum. The prescription runs in a variety of forms. A majority of voters must signify their approval in Pennsylvania, a majority of property taxpayers in Utah, a two-thirds vote is required in Missouri and a three-fifths vote in Okla homa. Such provisions must be substantially com plied with in issuing bonds in order to insure their validity. Since the details of elections offer abun dant opportunities for irregularities which will en danger the lien of the bonds, it is greatly to be de sired that the current practice of depending upon the opinions of legal experts should give way to some system like that used in Pennsylvania, where a court canvasses the election and makes a declaration as to its regularity.
7. may prescribe the method for the sale of bonds. Usual provisions are a sale to the highest bidder, after advertisement, or a sale not below par. Lack of compliance with such re strictions, however, does not invalidate bonds which are in the hands of innocent third parties who are purchasers for value. Municipalities often circum vent the laws, prohibiting the sale of bonds below par, by allowing the bond houses to submit liberal bills for services rendered in legal investigation or the print ing of the bonds. In New York State the sale of village bonds must be to the bidder who offers to take the bonds at par at the lowest rate of interest. The result is the existence of issues of bonds with interest rates expressed in complicated fractions.
8. of municipal bonds must take the risk that the signatures of the officials are genuine, and that those who sign have the actual authority to do so. Recitals in the bonds may serve as an estoppel on matters of fact but not on matters of law, and the law authorizes only the proper officers to attest bonds. When officials change during the process of issuing bonds a question arises as to who should sign. The accepted rule is that the bonds should be signed by those who are in office at the time of the actual delivery and payment. Bond houses depend upon affidavits giving the names of the offi cers and their terms of office.
Against overissue and forgery the usual reliance of the investor is the guarantee of the trust company. For Texas bonds such a guarantee is not necessary, for in that state the attorney-general certifies to the regularity of the issue of bonds, and in so doing makes the issue incontestable on the ground of faulty execu tion.