HISTORY. OBJECTS, AND MErnous. The develop ment of municipal debt is for the most part coin cident with the expansion of municipal functions, an expansion which began with the nineteenth century and was particularly active during the decades between 1850 and 1670. A factor which contributed largely to the growth of American municipal debts was the aid given to railway enterprises. \l any municipalities so burdened themselves with debt for the sake of assisting in the construction of railways through their limits, that for many years they were obliged to forego the most essential public improvements. Such railway aid was granted by rural as well as by urban communities.
Railway assistance aside, the chief objects for which urban communities issue bonds are the opening and paving of streets, the construction of water-works, sewers, bridges, schoolhouses and other public buildings, and lighting. Counties, in some sections, issue bonds for bridges and for highway improvements. Finally, school districts, chiefly those located in rural sections, issue bonds to raise money to construct schoolhouses. Obvi ously, loans in anticipation of taxes, and floating debts, may have their origin in almost any of the various needs of the municipality. Loans in an ticipation of revenues are usually raised on notes or tax certificates. Obligations for ma terial and for labor or other personal services, or for amounts due on contracts, are frequently ac knowledged by warrants on the general treasury, or on some special fund; and such warrants be come negotiable paper. When the cost of specific ally local improvements, like paving or sewers, is met by special assessments on the property directly benefited, and the collections are de layed or distributed over a series of years, the obligations are met in a variety of ways, ranging from warrants to short-term bonds. In negotiating municipal loans, bonds are commonly sold, after public advertisement, to the highest bidder. Temporary loaves on notes are commonly effected at banks.
The financial principles involved in a consid eration of municipal debts are in most respects similar to those already set forth under DEBT, Ptmme; and FINANCE. :Municipal bonds are
issued for definite periods and the best and coal ition practice is to provide in advance for their payment at maturity. Formerly such provision was made through sinking funds, but for a num ber of years past there has been a growing ten dency to pay oft' municipal bonds in installments. This plan obviates the necessity of administering a number of special and rapidly accumulating funds. which sometimes present financial difficul ties, and are always subject to diversion on the part of unscrupulous or ill-advised municipal officials.
In fixing the term for which municipal bonds are to run, it should be borne in mind that since municipal bonds are issued to distribute the ex penst of certain improvements over a number of years, the term of the bonds issued should bear some relation to the probable life of the improve ment involved. Street pavements, for instance, require renewal in from ten to twenty years; it would therefore he a gross mistake to make Druids issued to cover their cost run forty or fifty years. Land purchases, on the other hand, in volve a Blass of property that appreciates rather than depreciates as time goes on; it might ac cordingly be permissible to pay for them by an issue of long-term bonds. Another important factor in fixing the life of bonds is the character of the undertaking, to which the proceeds are to be devoted. Water-works, for instance, produce a revenue, and not only may, but should be self supporting. The means are therefore at hand to pay off the debt, and the sooner this is accom plished the quicker can water rates be reduced. or the service improved. Schoolhouses produce no revenue; and this fact affords a reason, but not necessarily a sufficient one, for making the life of the bonds coterminous with the probable useful life of the structure.
The interest rates on municipal bonds have fallen from 6 and 7 per cent. a few decades ago to 3 and 4 per cent, as a normal figure for the hands of municipalities of good standing. The premiums generally received virtually lower the interest rate, often to a considerable extent.