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Sinking Fund

debt, city, co and payment

SINKING FUND. A fund arising from particular taxes, imposts, or duties, which is appropriated towards the payment of the interest due on a public loan and for the gradual payment of the principal. This defi nition was quoted and approved in Union Pac. R. Co. v. Buffalo Co., 9 Neb. 453, 4 N. W. 53. A fund created for extinguishing or paying a funded debt. Ketchum v. Buffalo, 14 N. Y. 379, cited in Chicago & I. R. Co. v. Pyne, 30 Fed. 89. See a definition in Elser v. Ft. Worth (Tex.) 27 S. W. 740; see Bank for Savings v. Grace, 102 N. Y. 313, 7 N. E. 162.

Formerly corporation mortgages usually contained a provision for a sinking fund. They are now less common.

A sinking fund tax is one levied to retire a loan, and the proceeds cannot go to floating debt ; Union Pac. R. Co. v. York County, 10 Neb. 612, 7 N. W. 270.

The constitution of Pennsylvania provides that every city shall create a sinking fund which shall be inviolably pledged for the pay ment of the public debt. Under this provi sion commissioners of the sinking fund may apply the money in the sinking fund to the purchase of the funded debt of the city, and the debt to that extent is thereby paid, and it is immaterial in determining the actual debt that the commissioners of the sinking fund have no authority immediately upon purchase to cancel or destroy the obligation of the city which they have bought. Securi

ties other than those of the city held by the sinking fund are merely an asset of the city and do not operate to the reduction of the funded debt. If payments are not made into the sinking fund as required by law the commissioner must see to it that they are made, even to the institution of legal pro ceedings against the city to compel payment ; Brooke v. Philadelphia, 162 Pa. 123, 29 Atl. 387, 24 L. R. A. 781. See Bruce v. Pittsburg, 166 Pa. 152, 30 Atl. 831.

Some modern writers consider them as a very expensive method for the borrower ; in Massachusetts, the act of 1913 prohibits them for municipal loans.

See Leake, Use and Misuse of the Sinking Fund [1912]; Browne, The Sinking Fund ; Sargant; Turner, Sinking Funds ; Alfred D. Chandler, Amortization, in Amer. Econ. Rev. III, No. 4 ; FUNDING SYSTEM.

A company formed under the Companies Act to work a wasting property (a mine or patent, etc.) need not set aside a sinking fund to meet the depreciation thereof ; 41 Ch. Div. 1.