5. Fluctuations.—In spite of the special demands for municipal bonds spoken of above, and their pop ularity as an investment, they have responded to the pressure of the decreasing purchasing power of gold, and have increased in percentage of yield in recent years. Response to the interest rate, modified by the existing conditions regarding banking reserves, es pecially of country banks, is the law governing the fluctuations of price.
The yield of first-class municipal bonds in Sep tember, 1916, ranged from to 4% per cent. Ex amples of selected issues, listed by E. H. Rollins and Sons of New York City, on September 1, 1916, are as follows: 6. Street improvement improve ment bonds, which are very popular in California, are not municipal bonds or special assessment bonds, because the taxing power of the community is not pledged. The municipality is involved in perfecting the lien, however, for it superintends the formation of the improvement (paving) district, determines the individual assessments, receives the interest and in stalments of principal from the owners of benefited property, when due at the city treasurer's office, and pays them to the holders of the bonds. The law makes the lien for street improvement prior to any other except a lien for general taxes. The claim may be enforced in the Superior Court against the prop erty. It is entirely possible for street improvement bonds to be issued in excess of the conservative mort gageable limits of the property benefited, and even in excess of its market value. It is necessary, therefore, that the prospective investor either inspect the prop erty for himself or risk the skill and honesty of a dealer who makes the selection for him. There is a derivative bond which is based upon original street improvement bonds placed in a collateral trust fund. These derivatives cure many of the defects of the orig inal bonds just as collateral trust real estate bonds cure the defects of real estate mortgages. The yield from them is from 6 to 6% per cent.
7. Special district obligations.—In many parts of the South and West there is considerable activity in organizing districts for special purposes, such as the construction of levees, the draining of farm lands, the building of irrigation works, and the construction of roads. The powers, debt limits, and points of proper procedure for bond issues by these districts are still in the process of being determined by legislation, and of being tested in the courts. For the time being, the investor should invest in them only on the advice of a bond house of the highest standing.
8. Municipalities as commercial hazards. When the legal aspect of a municipal investment has been disposed of there remains to be determined the sound ness of the economic life of the locality. Credit is
based not only upon the willingness and the legal per mission to pay, but upon the financial ability to do so. The schedules for an investigation of the general condition of a municipality, such as would be made by a first-class bond house include: 1, physical charac teristics—location, area; 2, population—nationalities, growth ; 3, appearance of the business, manufac turing, residential and agricultural sections; 4, gov ernment—formation, organization, character of offi cials; 5, schools—organization, bonded debt, sinking funds, value of property, statistics of attendance; 6, public utilities and improvements—water, sewerage, light, gas, street pavements, curbs, sidewalks, public buildings, parks, hospitals, how financed; 7, resources —mineral, industrial, mercantile, agricultural, finan cial (banks and their deposits, surplus and undivided profits), transportation facilities ; 8, property—true value, assessed value; 9, debt—general bonded, special assessment, floating, debt of coextensive and overlap ping municipal areas, debt limits; 10, sinking funds —amounts collected annually, bonds retired annually, repayment provisions of outstanding bonds; 11, taxa tion—rate, limits, if limits are established, annual statement of revenue and expenses for five years pre vious, power to refund, if there are a few dominant industries the percentage of the annual tax paid by each corporation; 12, defaults; 13, bonded debt, liti gation and proposed issues.
9. Population.—Actual enumeration of population can be obtained from the Federal and the state census. Annual estimates of population can be secured from the Federal Census Bureau. A comparative table can easily be constructed to reveal the progress of a city in comparison with others of its size, character and general location.
Growth is most sound when it is due to the pros perity of basic industries, such as agriculture, which are reasonably free from style change or from the dis turbances of the money market. Diversified manu factures and a strong position as the trading center of a prosperous surrounding population are assurances of permanence. An illustration of a municipal de scription as found in a circular of Seattle water-fund bonds, issued by Spencer, Trask and Company of New York City, is as follows : 10. Financial conditions.—Mr. Paul Clay has cal culated from the Census figures that the average as sessed value of American cities is 75 per cent of the true value, and the average debt 7.85 per cent of the true value. He estimates that the per capita debt is $68.24 ; and that the tax rate is $18.34 per $1,000 of assessed value, or $15.00 per 1,000 of true value. These figures can be used as reference points in judg ing the relative standing of any particular city.