MUNICIPAL DEBTS. One of the most striking facts in modern American city de velopment is the appalling increase in municipal indebtedness. Startling figures upon this sub ject have been compiled by the United States Census Bureau. Municipal and country debts increased 76 per cent from 1890 to 1902. From 1902 to 1913 they had increased 1132 per cent and had reached the enormous net total of $3,475,954,353, or more than twice the com bined indebtedness of the Federal and State governments. At the end of the fiscal year 1915 there were 146 of the cities in the United States which had a population of more than 30,000, whose total indebtedness exceeded that of the national government by $1,155,758,406 or 106 per cent. In these cities the per capita debt had increased from $44.71 in 1903 to $77.86 in 1915. That this increase in indebtedness has not been uniformly rapid, however, is shown by the fact that in Rhode Island the debts of cities, towns and villages increased less than 1 per cent between 1902 and 1913, while in Cali fornia there was an increase of 986.1 per cent during the same period.
An accurate statement of the causes of this increase in municipal indebtedness does not reflect credit upon the soundness of our munic ipal finance. After the Civil War American cities very generally embarked upon programs of reckless expenditures for various municipal services and utilities. These were paid for by the issuance of lionds. These bonds were too frequently issued for terms much longer than the life of the improvements or property for which they are to pay. Cities also entered upon the unwise policy of borrowing to meet the cur rent expenses of the city. Inefficient methods of municipal accounting contributed to the gen eral financial chaos. State supervision was too often inadequate to the task of preventing the floating of ill-advised municipal loans. To all these factors should be added the general reck lessness and optimism of municipal adminis trators who were never depressed by the con sciousness that money once borrowed must ulti mately be repaid.
The conviction that municipalities cannot be trusted to borrow money without restraint while not new has in recent years grown stronger. This is clearly evidenced by the in creasing number of restrictions placed upon the borrowing power of the American city which may be thus summarized: Restrictions upon Municipal Indebtedness.
A city must not incur debts beyond its delegated powers. The power to borrow must either be given in express words in the city charter or it must be implied from some power which is specifically granted. Without such positive authority debts incurred by the city are absolutely void.
(2) Municipal debts may be contracted only for public purposes and not for the benefit of private individuals or groups. This restriction is the logical result of the well-established rule of constitutional law that taxes may be levied only for purposes which are public, inasmuch as the city's debts must ultimately be paid by taxa tion.
(3) Limits upon the amount of municipal in debtedness which may be incurred are found in the statutes or constitutions of most States. These restrictions specify that city debts must not exceed a certain per cent of the value of all the taxable property, all the real property or must not exceed the annual income of the city. These percentages vary greatly, running up to 18 per cent in the constitution of Virginia. The establishment of a debt limit in a State constitution does not confer upon cities any power to create an indebtedness up to that limit and the State legislature may, by statute, im pose additional restrictions in its discretion. Any debts contracted by the city beyond the limits so set are void and persons who loan money to municipalities must learn at their peril whether the city, in issuing the bonds they buy, has exceeded its debt limit. Both con stitutions and statutes sometimes provide that in determining whether the total indebtedness of a city exceeds the limits set, debts incurred for certain special purposes shall not be in cluded. The debts so excluded are those con tracted for the purchase or construction of public utilities such as waterworks or lighting plants from which the city expects to derive revenue. There is a difference of opinion as to the wisdom of this policy. It has been urged that bonds issued for these revenue bearing projects should be counted in comput ing the city's debt unless such bonds are secured merely by liens or mortgages on the properties in which the money was invested and do not constitute general liabilities upon the credit of the city. In short if the bonds will be paid ulti mately out of money derived from taxation they should be viewed in the same light as debts incurred for any other purpose.