16. Franchises and Control of Public Util Perhaps there is nothing more charac teristic of urban life than the development of those co-operative services commonly called public utilities, such as water supply, gas and electric light, heat and power, street railways and telephones. The modern city as a great co-operative unit could not exist as it is without these utilities and these utilities themselves could not exist except through the use of the public streets, which are rightly regarded as the common property of all the people, the very symbols of democracy and civic freedom. In America the habit of individualism has been so strong and community life in cities has been so poorly organized and so devoid of initiative that the actual construction and operation of most of these great utilities has been left in private hands. Waterworks are an exception. Also a few cities own and operate gas plants and many of the smaller cities maintain municipal electric plants. New York and Boston have built rapid transit subways at public expense, but they are equipped and operated by private companies under long-term leases. San Fran cisco and Seattle have within the last few years constructed certain street railway lines which are now being operated in partial com petition with the privately owned street railway systems in these cities. Baltimore, Erie and one or two smaller cities have built systems of electrical conduits which are rented out to the public service corporations having wires in the streets. In so far as public utilities have been recognized as a direct municipal function, they involve the expenditure of enormous sums of money in the acquisition or construction of plants, the maintenance of great operating de partments with multitudes of employees and the collection of vast revenues. By way of illustration, the department of water supply, gas and electricity of the city of New York operates a water plant representing a total investment of about $350,000,000, employs over 2,000 persons in the operation of this plant and levies and for the most part collects over $13,000,000 per annum of water rates. So far as public utilities are still regarded as a semi private function, their presence imposes upon the city government the heavy responsibility of granting franchises and of attempting to regu late on behalf of the general public the rates at which the people shall be served and the character and extent of this service. It is in connection with these matters that many of the most important civic struggles take place, and more and more the issues involved in the ownership and regulation of public utilities tend to affect and even dominate the policies of municipal government.
17. Muntdpal, Revenues and Taxation.— The multiplication of the functions of govern ment necessarily results in a tremendous in crease in the cost of government. The city of New York makes annual appropriations of about $200,000,000, or nearly four times the amount appropriated each year by the state of New York. Municipal revenues are derived from many sources, but the one most import ant source is the taxation of land. Indeed, it is the great increase in the value of land arising as a city grows that enables it to meet the ex penses incident to growth. It is the general practice in American cities to levy taxes on property, theoretically upon all property but practically for the most part upon real estate. Land cannot run away at all and buildings can not do so without extreme difficulty. In most American cities personal property is subject to taxation but on account of the difficulty of detecting and appraising it the great bulk of personal property values escapes direct taxation. Another means of securing revenues for pub lic improvements is the so-called special as sessment or what in England is referred to as the ((betterment tax" It is the theory of spe cial assessments that the particular improve ments for which they are levied have a direct effect in increasing the land values in the vi cinity and that therefore the owners of the land should pay for the improvements. Spe cial assessments are most frequently levied for the opening, grading, paving and widening of streets and for the construction of sewers. Sometimes also they are levied to pay the cost of parks and water main extensions. Another source of revenue is the general business license tax, a form of tax quite prevalent among the cities of the South. Every city, however, col lects some revenue from various kinds of li cense fees. In some of the States, cities get subventions from the State government, usually for the benefit of the schools. From water works or other utilities operated by the city, large revenues are obtained, and in some in stances a city gets a great deal of money from the public service corporations through the form of franchise taxes.
18. Municipal Debt and Debt Limits.—A city's wants are never satisfied. Its needs out run its income. Expensive improvements have to be constructed which are destined to last and be of service for many years. The citizens of a growing city hard bestead to get rich and at the same time pay the increasing cost of the government, generally feel that a portion of the burden of paying for such improvements should be passed on to the next generation, which, it is expected, will continue to have the benefit of their use. Therefore, it has been
customary for cities to borrow the money quired to make the so-called permanent m provements, and in times of rapid growth when the demand for additional investment is great and the expectation of future profit keen, a strong temptation arises to pile up municipal debts needlessly and to postpone the payment of expenses which in fact ought to be paid out of current revenues. The danger of municipal bankruptcy is regarded as so serious that the State seldom, even in the adoption of home rule amendments to the constitution, gives the city authorities power to incur debt without limitation. In fact, it is a well established, though not universal policy of the States, to limit mu nicipal indebtedness by direct constitutional pro visions, and where this is not the case the legis lature is often given specific authority by the constitution to pass general laws limiting municipal indebtedness and sometimes limiting the tax rate. Frequently the issuance of mu nicipal bonds is made subject to approval by a majority of the people at an election. The establishment of debt limits has in many cases proved embarrassing to cities. The exigencies of municipal development have seemed to re quire in many cases the borrowing of all the money that can be borrowed up to the debt limit. The real purpose of a debt limit is to keep within reasonable limits the tax burden upon property, for obviously the borrowing of money is merely the postponement of taxation. Bonds that are issued fall due after a while and have to bepaid, and in the meantime in terest charges add to the annual burden of the taxpayers. The fundamental purpose of debt limitation is served when bonds issued for self sustaining activities of the city government, such as waterworks, docks, rapid transit sub ways, electric-light plants, etc., are exempted from the debt limit, for a city's financial strength and civic prosperity is not measured by the smallness of its debt, but by the excess of its assets over its indebtedness and of its revenues over its current obligations. A debt limit that is inflexible and gives no leeway to a city to embark upon public utility enterprises is one of the most effective means of tying the city's hands and hindering the full development of its functions. In fact, municipal ownership and operation of public utilities as an ultimate policy is quite generally recognized, but cities are prevented from entering upon the realization of this policy, or even preparing for it, by the stringent financial limitations often placed upon them. In a few States, of which Michigan and Ohio are examples, cities are authorized to ac quire public utilities and to issue bonds there for, against the general credit of the city, if this is possible within the debt limit, and if this is not possible, then against the utility property itself. The State of Washington has gone even further and permitted the issuance of public utility certificates under ordinances pledging the utility revenues, not the utility plant, to the bondholders and thus making interest charges a first lien upon the gross earnings, so that if earnings are insufficient for all purposes the city will have to come to the rescue, not through the payment of interest on bonds, but through the payment of operating expenses of the utili ties. The very great additional sums paid in the form of interest where long-term bonds are issued has led to the advocacy in some quarters of the "pay-as-you-go" policy, under which non revenue producing public improvements, if not paid for through special assessments, will be paid for directly out of annual revenues. It is urged that by the adoption of a proper program of improvements so that the expense will be spread along quite evenly year by year the city will save a great deal of money by this policy. It has been generally customary for cities to establish sinking funds when bonds are issued for the purpose of accumulating a sufficient amount of money to pay these bonds when they fall due. The difficulties and dangers in volved in the management of great trust funds like these have led to the adoption in some in stances of the serial bond plan in accordance with which an issue of bonds to provide funds for a specific purpose will be divided into as many parts as the number of years which are reckoned to be the life of the improvement, and equal numbers of them are made to fall due each year up to the limit of such estimated life. In connection with special assessments it is customary, in order to make the payment of the assessments levied against benefited property easy, to allow the property owner a certain pe riod of years for completing the payment of his assessment. Under this plan he is expected to pay an equal amount each year until the whole is paid, and in the meantime the city issues so called assessment bonds to cover the cost of the improvement, these bonds to be payable out of the assessments as they are paid.