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Minneapolis Civic&Commefx:e Association
A SUH\rb1Y OF THE EOITPET- DEBT
THE 0PxM7-wI0:^ OP THE Si.ix.i.G FUHD
OF
MIUisOLAiPOLIS
By The
Bure/u of Municipal Pesearch
March 27, Ibii^k-.
A S U R V E Y
OF
A H D
111 5ZEPAT22N OF THE SINKING FUND
F
ISl 1111 9.L MiiiSEAPOLis
HIS,
SUGGESTIONS FOR A FINANCIAL PLAN.
By The
Bureau of Municipal Hesearch
Of Tho
Minneapolis Civic and Commerce Association
'^ March 27, 1922.
AU'7Afir
■ ' , , ; ; ••••*» J'j I' ', I :.
In making the folio ving study of tho uitmi^xpolV^ 'Bbntlfed* Debt
#
find Sinking Fund tho Buror\.u of Ifunicipr^.l RosQ-^.roh has boon influenced by
four factors, vis:-
1, The City is fast approaching tho bonding limit fixed by ntato
law boyond vfhich no bonds inay bo issued.
Zf Tho urgent need of I/iunicipal inrorovomonta calling for increas-
ingly larr;o issues of bonds,
3» The inadequacy of the present Sinking Fund to provide s\ifficient
sums to anortizG outstanding bonds*
4« The need to establish a sound financial policy for the future
vrhich v/ill be cone a part of any City Charter that niay be adopted and
v/hich \7ill as nearly as possible equalize tho burden of taxation and
continue to keop tho city in a favorable position before tho bond-
buying public.
To this end tho following facts havo been gathered and are
here presented to tho City Officials and tho general public.
MINNEAPOLIS CIVIC & COISitJRCii; .'^SOGIATION
COM4ITTEE ON MUNICIPAL RESEARCH
A, M, SHELDON, Chairmn
R. G, BLMCBY L. C. BURR
E, J^.COUPER A. C. DA^r^WBAUM
KiJlL DeLAITTRE W. P^ DSVEREUX
W, S, DV/INNSLL V;. A, EGGLfiSTON
FRED L. GR-^Y 0. D. HAUSCHILD
D. P. JONES J. R. KINGMAI^
C. L. PILLS BURY C.J. RXK?/DOD
E. S. SL/.TER H. D. THRALL
P. L. OLSON, Director
J. T. HELSOM,Aocountcuir
SSS987
*•« ' *?*• •
1 • • ^ •
Chaptor
1.
TABLE OF CaiTENTS
HISTORY OF MFNT^APOLIS DEBT & SINKING FUND
"I. Definition of "Sinking Fund"
2. I:.- 30-Ycar Bond Theory
3. Shcrr, porm Bonds
4 • Graph S ha-r in^ ll txir it ios
5. Statistical Tables
a. Tablo of Gross Dobt showing character
of service or asset
Rago
4
ft
7
8
11
b. Tablo of City Debt showing source of
payment ^^2
c. Tablo shCT^ing years and amounts in which
Bonds will mature ^4
d. Tabic showing interest due on present debt 15
II • MINIJEAPOLIS SINKING FUND REQUIRE?ffiNTS
1. Card Record of Sinking Fund j^7
2. Sinking Fund Balance & Shortage 18
3. Effect of Sinking Fund on Bond Prices 21
4. Limit of Bonded Debt ' 22
5. The 3-Mill Levy and Its Limitations 24
III. MODERN TENDENCIES IN MUNICIPAL FINANCE
1. The New Jersey Financial Code 29
2. The "Pay-as-you-go" Plan of the City cf
Now York 5%
3. Serial Bonds & Their Relative Cost 32
IV. PROPOSAIS FOR THE FUTURE
1« Conclusions mM
2, Possible Courses Comprising Five Plans
of Procoduro 3^
3. The Recommendation of the Bureau of Municipal
Research 4q
V. MINNEAPOLIS BOND RECORD.
1. Valuation of City Owned Property 44
2, Official Record of All Bonds Issued by tho
Citv of M-innopnrsI i e
A e cf\
I, HI STORY OF MTimEAP OLIS DEPT. AND SINKING FUND
1, WHAT IS_A S INKING FUI^D ? . .
The need for making, public improvements the lifei of which
may extend over a period of years and oft«^n into the succeeding generation,
has brought about the necessity of financing these improvements so that
the burden of their cost \^ill be equally borne by all the tax payers
deriving benefit therefrom. To this end bonds are issued, pledging
through authorized officials, the faith and credit of the municipality,
that such debt will be paid at its maturity •
For the purpose of equalizing the burden of paying the debt over
the period of its life and to provido an adequate sum with which to pay the
debt at its maturity, a certain equitable amount is to be included in each
year's tax levy and laid asido in- what has been termed a "Sinking Fund."
This Fund has been defined as
"a Contract entered into ^^rith the purchasers and holders
A of long term bonds, which provides for the setting aside
from current revenue annual installments to accumulate
at interest in order to amortize the loan,"*
In the majority of Minneapolis bond acts the sinking fund
provision is to be found stated as follows:-
"and the City Council of such city shall each year include
in the tax levy for such city a sufficient amount to provide
for the pa3Tnent of such interest as it accrues and for the
ac cu mulation of a Sinking Fund for the redemption of such
bond's*" at tTierf maturity .'"^'
This sinking fund provision becomes on the issue and sale of
bonds a contract with the bond holder , the obligation of which the
Legislature has no power subsequently to impair by repeal or modification
of the sinking fund provision . This point has been repeatedly held by
the Federal Supreme Court.*
* Dillon - Mun. Corp, 4th Ed.
tt WQuUl 9e«m iher«f or» lba% in eaeh InstAXB^ trtref* t)i» Authorising
>«it *ot> MgpfvSAly l^rovidea for the lavylo^ of % ««rtAUi mumaI •«KJtat4riKb0
K linking fund sufficient to p&y that isaue of bonda at its maiurfiy^ it
beocmes standatory ttf the tax levying body to so Idvy and sot asldo oiioh
sums for oach ^<m^ 1mim« and that any modification of such provisioii it
to be held a violation of \9m by reascn of Supreirta Court deoisionot *
Whether it beoemaa mandatory to levy equal annual sums to oreato a
sinking fxind for those issues of bonds where such provision is pet so
expressly stated in the Bond Act, or whether payment may be arranged for by
a certain annual tax levy sufficient to cover all suoh issues^ is a point Q(^ •
which there may be diverse opinion*
«
However* it may be accepted as a fundai[iental principle that tha
iife of the debt shall not be longer than the life of the asset acquired foy
which it is issued *
If it is made shorter than the oentemplated iBprovement or acquir^i
asset aertain taxpayers would derive a benefit for wTiich they have not bten
M0O«8ed; whereas 4 if the life of the debt is made lenyr than that «f the
acquired asset, the Capital Value of the cenmunity is \eBsened«
That a clearer realization of this fundamental prinaipal is btlmg
held by other states is evidenced by the lews being written into their
Statutes classifying the various types of bonds and the term for whleh
they nay be issued.
Notable among these is the classification adopted in tha Nsiw
Jersey Code enatfeed in 1916 which appears elsewhere in this report t
2, • THE 30 - YEAR BOND THEmY .
Apparently, it was the original theory of the framero Of the
Minneapolis Charter that all bonds for public improvements such as Sohool
Buildings, Sewers, Water Supply, Parks, Bridges and other similar projecte
5
should bo financed on a 30-year plan. Evidence to nuppot this theory
has benn obtained through interviews vith public officials and is
further shown by reason of the fact that beginning v/ith the year 1381
v/hen interest ratos cc.iro down to a normal 4^ after the high rates caused
by the Civil T.'ar, this plan was strictly followed and a total of
016,000,000 in 30-yoar bends was issued betv/een 1881 and 1910, Of that
amount noro than six million dollars have boon paid.
Tirj9 has proved that nany errors of judgment wore mdo during
this period in the issuing of 30-year bonds for sliort lived iiiiproveincnts.
For exanple :
(a) In 1887 - 30 year bonds for 030,000 v/ere issued for the con-
struction of a Locloip which v;as abandoned in 1904 - 13 years
before the bonds matured .
(b) During the period 1887-1910, 30 year bonds to an amount of
more than 02,000,000 v;erc issued for inprovcnonts , such as
paving, grading and curbing, which inprovenents vrere of iiuch
shorter life than that of the bonds financing then - causing
a burden of debt and interest upon taxpayers "ssdio derived no
benefit therefrom,
(c) 30-year bond issues for Schools "have included funds used for
equipment such as chairs, desks, automobiles and appliances
for laboratory and manual training work that were worn out
or superseded by improved equipment many years before the
bonds were redeemed, again placing the burden unfairly.
Note:
In this connection it is to be noted that each year when budgets
were being considered representatives of the Bureau of Municipal
Research have appeared before the Board of Estimate and Taxation
and protested against the issuing of bonds for Gchool Equipment,
These protests have been unavailing until this year when the
Board of Education included in its budget for current expense
an item of s^60,000 for that purpose.
6.
^ • SHORT-TI SRM B_OI\irS IS..UED
Boginnlng v/ith 3.911 and in nubsequent years tho City Council
and other Boards requested of the Legislature and \7erG granted authority
to issue bonds for short terms of 5- 7- 19-year s v«rith the result that in
the period from 1911 to 1921 bonds to tho ar.ount of i^l,287,000 have been
issued and redeemed, notwithstanding the fact that the' character of the
implrovement for which tno bonds wore issued (i. e. Schools, Water Supply,
Parks, etc*) warranted the issuance of longer term bonds, - causing a
heavy drain on the Sinking Fund»
In 1915 boaf"»s werp issued to the amount of ;S5l,597,500 - of
which all but ;i?)500,.000 were issued for a period of 12 years - causing
them to fall due in 1927, The reaf^ons stated by City Officials for
issuing these short term bonds for long lived improvements were that v/ar
conditions had unduly inflated interost rates and the Legislative Act
authorizing the sale of bonds had set limitations on the rate of interest
to be paid and the discount to be accepted, therefore bond buyers stipu-
lated that bonds be redeemable not later than 1927. It i/as also
expected that a lowor interest charge might be obtained by refunding
these bonds in 1927.
This has served to make 1927 the first "peak load" in the
payment of bonds, as will be more readily seen on the accompanying graph*
7.
GRAPH SHCWING MftfURiriES - 1922-L945
8
O
o
to
o
8
CO
lO
Othor peak loads occur in 1939, 1941 awi 1942, calling for
unusually heavy drains upon the Sinking Fund in those years*
This condition and the demand for issuing bonds in oontin>ially
increasing amounts to care for enlarged municipal activities and improve-
ments has caused serious consideration on the part of the City's financial
officers as to the best method of equalizing the burden of bond redemption.
Various plans have been tried, somo of which are illustrated below,
(a) Bonds have been issued for shorter terms than the life of the
improvement warranted, - such as Water Works bonds for |300,000
issued June 1913, payable in seven years \
(b) Serial Bonds have been issued - i. et the whole amount of the
issue has been made payable in equa.l annual installments beginning
with the first year - such a s Sfchool Bond^ for |1,230,'000 issued
in July 1921 payable in 30 annual amounts of .f 4 1,000 each.
(c) Issues have been divided into irregular amounts and made payable
in non-cons ecutivo years in order that the peak years might be
missed, - such as School Bonds for $2,000,000 issued Dec. 1920,
(d) Issues were made payable in equal annual installments - the pay-
m.ents however to begin after a number of years had elapsed - such
as Funding Bonds for :ipl,000,000 issued August 1919, the first
payment to be made in 1925.
Under this latter method (d), an unnecessarily large burden in
interest charges was imposed upon the tax payers as shown by the. following
example: -
In 1919 it v/as found necessary to care for a large deficit
in the Current Expense Fund caused by salary increases, etc. by
issuing bonds to an amount of | 1,000,000. This issue provided
that the bonds be made payable in five equal portions of i5200,000
each, the first to fall due, however, in 1925 - six years after
the date of issue, - and the balance in equal portions in the
succeeding four years.
Five percent interest - or ^50,000 annually will be paid on
this loan for six years - a total of $300,000 - before the interest
charges are reduced. And thi s o n a l oan covering a deficit in
current expenses 1
9.
Hote :
Prior to the sale of the bonds referred to, the Gemini. tteo
on Municipal Research addressed a letter to the City Council iU which
it was suggested that inasmuch as these bonds vere issued to laetrt current
expenses, they should be retired within the current period as nea'^ly as
possible. The Committee therefore recoramendod
1. That the Londs be issued for a term of not more than five y'ears.
2. That they be Serial bonds.
3. That they be issued in installments of i^500,000
4. That a bill be presented to the Legislature providing for a
special levy to produce rn amount sufficient to retire annually
one-fifth of the principal and to pay the interest.
How nearly these recommendations were carried out becomes apparent fr<M
the preceding paragraph.
5. TABLES SHavING Bai D ED DEBT.
On the following pages will be found tables showing
a* Gross Debt - v/ith character of service or asset
b. Gross Debt - Sinking Fund and Special Funds and allowable
deductions to show net debt.
©• Table of total maturities,
d# Interest amounts payable on present debt.
10.
5-a*
TABLE NO. 1 SHCMING GR03S DEBT AIJD
CHARACTER OF SERVICE OR ASSET.
CHARACTER (W^ t-SSUE
EDUCATION:
Schools
Libraries
HIGHV/AYS & BRIDGES
Street Iraprovemeuts
(Paving, Curbing- lateral sewers)
Revolving Fund
Bridges
RECREATION:
Parks & Park ImDrovoments
Playgrounds (t Be.ths
SANITATION
I&iin Sewers
Comfort Stations
Bassetts Creek Sewer
PUBLIC SERVICE ENTERPRISES:
Water
Fiver Terminals
Appraisal (Street Railway)
Electric Light Plant
PUBLIC WELFARE
Hospital
Workhouse
FUNDING OPERATION DEFICITS AND REBATES
Current Expense
Tax Rebates
Schools
Election
Garbage
Water
PROTECTI(»f OF PERSONS & PROPERTY
Fire Department
Police Departm-^nt
Armory
GENERAL GOVERNI.IENT
City Hall
Voting Machines
Sundry Purposes
AMOUNT OF ISSUE
% OF TOTAL
Sil3,505,500
290,000
9,126,662
1,650,000
2,045,000
$13,795,500 54.68
12,821,662 32.22
3,983,680
235,000
2,631,000
50,000
273,000
1,750,000
130,000
25,000
50,000
1,097,500
115,000
1,000,000
200,000
300,000
50,000
33 , 700
40,000
317,000
75,000
150,000
450,000
158,200
67,000
4,218,680 10.60
. 2,954,000
1,212,500.
1,623,700
542,000
675,200
7.43
1,955,000 4.92
3.02
4.07
1.36
1.70
$39,798,242 100.00
11.
5-b.
TABLE KO, 2 SHa/BTG CITY DEBT AFD f:OUP.CE
OF ?AYfl£?]T
As of December 31, 1921
BONDS PAYABLE FRO!: GLNFXAL SIIIKIilG FDTID
Appraisal Bonds
Armory Bonds
Baosett's Croek Bonds
Bridge Bonds
City Hall Bonds
Comfort Station Bonds
Electric Li<?;ht Pi?^.nt Bonds
Fire Department Bondn
Funding Bonds
Hospital Bone's
Library BcndE
Hunicipal Bath Bonds
Park Bends
Permanont Improvomont Bond-
Park Playground Bonds
Police Station Bonrls
Revolving Fund Bonds
River Torr.inc-.l Bonds
School Bonds
SoT7or Bonds
Sundry Bonds
Tax Robato Bonds
Voting Ifcichino Bonds
Water Vforks Ponds
Workhouse Bonds
BOiroS A!!D CERTIFICATES PAYABLE FRO'i SPECI/iL FL^TDS
City Hall and Court House Bonds
Flection Doficit Certificates
School Deficit Bonds
Garbage Collection and Cremation Certificates
Water Department Certificates
Street Improvement Certificates
Park Acquisition Oertificaoos
Park Cer^ificates - Ten year plaii
Gross Debt - December 31, 1S21
; 25,000.00
150,000.00
273,000.00
2,045,000.00
50,000.00
50,000.00
50,000.00
317,000.00
1,000,000.00
1,097,500.00
290,000.00
155,000.00
2,698,000.00
2,482,000.00
80,000.00
75,000.00
1,650,000.00
130,000.00
13,505,500.00
2,631,000.00
67,000.00
200,000.00
158,200.00
1,750,000.00
115,00 0.00
"^7?.44,200.C>0
400,000.00
50,000.00
300,000.00
33,700.00
40,000.00
6,644,662.36
1,012,719.77
72,950.00
8,554,042.13
^39,798,242.13
•12,
5-.b. TABLE NO. 2 SHailNG CITY DEBT AND
SOURCE OF PAYKffiNT
As of December 31, 1921.
(Continued)
DEDUCTABLE OBLIGATIOJg^, AS^ I^ SEC. 1848; R. S. 1913
Revolving Fund Bonds V 1,650, 000. 00
Water Works Bonds 1,750,000.00
Water Works Certificates 40,000.00
Electric Lig^t Plant Bonds 50,000.00
River Terminal Bonds 130,000.00
City Hall and Court House Bonds 400,000.00
Street Improvement Certifioatos
Assessed portions (2/3 of Total) 4,711,546.76
Park Acquisition Certificates -
Assessed portions (2/3 of Total) 730,001.72
Park Certificates - Ten year Plan -
Assessed Portion 52,00 0.00
Total Deductions ' - 9 ,513 ,543.48
Balance -- 30,284,693.65
Sinking Fund, as of December 31, 1921. 2,606,318.20
Net Bonded Debt, as of December 31, 1921. i^ 27,678,375,45
13.
5c t
TABL E NO. 3 SHavilIG YT:aRS AND AJIOTJNTS IN V/FICR
YEAR
SINKING
FUIH)
SPECIAL
LEVIES
GROSS DEBT
1922
S 557,000
$ 807
,268.01
1923
735,500
655,
,942.80
1924
451,000
655
,242.60
1926
1,064,000
557
,042.80
1926
752,000
556
,542.80
1927
2,182,000
558.
,083.54
1928
787,200
•54"
,793.50
1929
772,000
544,
,935.00
1930
470,000
537.
,575.00
1931
664,000
456.
375.00
1932
918,0(X)
384
,895.00
1933
1,075,000
384,
845.03
1934
1,090,000
376,
275.85
1935
777,000
584,
545.00
1936
577,000
266,
475.00
1937
1,576,000
218,
400.00
1938
1,210,000
159,
000.00
1939
2,635,000
164,
000.00
1940
1,142,000
97,
000.00
1941
3, 151, '^00
46 J
000.00
1942
2,232,000
1943
673,300
1944
1,505,000
1945
697,500
1946
807,000
,
1947
775,000
1948
409,000
1949
935 ,000
1950
573,000
1951
53,000
PAID BY ASSESS.
rIENTS ABAINST
BENEFITTED
PROPERTY
1,364
1,391
1,106
1,621
1,508
2,740
1,330
1,313
1,007
1,120
1,302
1,459
1,466
1,361
843
1,794
1,369
2,799
1,239
3,197
2,232
673
1,503
697
807
775
409
935
573
55
,268.01
,442.80
,242.80
,042.80
,542.80
,088.54
,993.50
,935.00
,575.00
,175.00
,895.00
,645.03
,275.35
,545.06
,475.00
,400.00
,000.00
,000,00
,000.00
,700.00
,000.00
,300.00
,000.00
,500.00
,000.00
,000.00
,000.00
,000.00
,000.00
,000.00
579,693.76
379,680.87
378,963.90
380,484.73
380,587.76
381,080.50
363,971,79
368,050.26-
364,793.66
313,524.70
266,661.06
265,848.31
269,263.23
239,164,97
193,629.67
160,409.98
120,343.31
123,951.86
71,196.49
37,217.37
AMOUNT TO
BE PAID
FROM genera:
TAXATION
t 984,574.25
1,011,761.93
727,258.90
1,240,568.07
927,955.04
2,359,008.04
964,021.71
948,874.74
642,781.30
806,650.30
1,036,233.94
1,193,996.72
1,197,012.62
1,122,380,03'
649,845.33
1,633,990.02
1,248,656.69
2,675,048.14
1,167,803.51
3,160,482.33
2,232,000.00
673,300.00
1,503,000.00
697,500.00
807,000.00
775,000.00
409,000.00
935,000.00
573,000.00
53,000.00
$31,244,200 s^8,554,042.13 v*539,798,242.13 05,441,548.48 $34,356,693.65
14.
5-d
TABLE NO. 4 SHCMING
INTEREST DUE ON BONDS BEGDINING
WITH THE YEAR 1922 AND ENDING ^'TiEN
AU. PRESENT BONDS HAVE IIATTJRED.
INTEREST ON SINKING
INTEREST PAID
TOTAL
FUIEi' BONDS PAID OUT OP
BY SPECIAL
INTEREST
YE/iJ?
GENERAL INTEREST FUND
1,345,088.35
TfiX LE^/IES
DUE
1922 $
$ 133,988.59
$ 1,479,076.94
1923
1,317,008.25
116,312.43
1,433,320.68
1924
1,289,768.25
110,059/34
1,399^827.59
1925
1,259,858.25
93,869.79
1,358,728.04
1926
1,218,428.25
92,624.02
1,311,052.27
1927
1,143,833.75
86,470.65
1,233,304.40
1928
1,093,808.25
79,505.21
1,173,313.46
1929
1,053,690.25
73,315.83
1,127,006.08
1930
1,024,680.25
66,691.86
1,091,372.11
1931
999,7BC,25
56,223.01
1,055,973.26
1932
971,980.25
47,626.65
1,019,606.90
1933
926,825.75
42,736.27
969,562.02
1934
879,655.75
37,401.57
917,057,32
1935
838,870.25
43,117.66
861,987.91
1936
809,570.25
23,263.65
832,933.90
1937
781,748.25
17,857.54
799,605.79
1938
717,113.25
12,660.69
729,673.94
1939
667,668.25
10,984.00
678,652.25
1940
553,057.75
5,892.01
558,949.76
1941
462,073.89
2.519.50
464,593.39
1942
348,804.50
348,804.50
1943
288,558.00
288,558.00
1944
240,292.50
240,292.50
1945
197,682.00
197,682.00
1946
161,817.00
.
161,817.00
1947
123,899.50
123,899.50 .
1948
95,599.50
95,599.50
1949
65,812.00
65,812.00
1950
25,182.80
25,182.80
1951
2,350.00
2,350.00
$20,907,575.54
$1,158,020.27
^22,065,595.81
Interest paid
prior to 1922
on present
Sinking Fund
Bonds-
9,7R2,06O.OO
50,669,635.54
When the present outstanding bonds ($31,244,200) payable from the
General Sinking Fund are all retired, the City will have paid a total in
interest of $30,689,635 which shows that for each dollar borrowed an average
of 98 cents will be paid in interest before the debt is cancelled.
The foirowing question very naturally raises itself: Is there
any economical system of financing public improvements that will save the
98 cents. Tliat question will be discussed in a later section of this report.
15.
II , SINKIN G FUND REQUIREMENTS .
1. A SINKING FUND RTXORD .
To make a coinplote examination of the Sinking Fund with
the object in view of accurately cc»nputing its requirements, the
Bxireau printed a card showing all of the information with regard
to each separate bond issue.
A reproduction of one of the cards follows:
16,
^Annual Installamtits base3~on Sinking Funia'
j Earnings at 4^
(Factor .01783010 r*200,000 For Period of 30 Years)
Annual Interest Charge
5566.02
Year
Bond
Year
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1905
1907
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917
1918
J1919
1920
'•■'921
922
923
1924
1925
1
2
3
4
5
6
7
8
9
10
11
12
15
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Required S,
at end of
Bond Year
F.i
3
7
11
15
19
25
28
52
37
42
48
53
59
65
71
77
84
91
98
106
114
122
130
139
148
158
167
178
188
200
565.02
274,68
131,72
142.92
314.64
652.84
165.92
357.52
737.80
813.36
091.80
581.48
290.72
228.40
403.44
825.68
504.64
450.80
674.80
187.80
001.32
127.32
578.44
367.56
508/28
014.60
901.20
195.32
877.20
000.00
.^.5000.00
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On the card reproducod herewith a Bond issue of jS!200,000 was
made on Janiary 1st, 1895 for the purpose of erecting e. water works
reservoir, - these bonds to run for a period of 30 years. The annual
interest charge at ^% was v8,000 and the annual deposit in the .jinking
Fund |3566,02.« In the proper column on this card there are listed the
years which this issue covers, 1896 to 1925 inclusive, and the amounts
which should be in the Sinking Fund on any one of those years if the
original plan provided for in the law authorizing this issue had been
complied with* It will be seen that in 1921 there should be in the
Sinking Fund applicable to this issue of bends, the sum of ::'-158,014.60.
Each issue of bonds was computed separately and the figures for
each year were recorded on the proper card. It is therefore possible to
ascertain the amount which should be in the Sinking Fund at a^^y given year
by adding the amounts on tho various cards shown opposite the year desired.
This has been done for the year 1921 and a comparison of the
resulting total with the amount now in the Sinking Fund shows the
following:
• •
2. THE SINKING FUM) BALANCE & SHORTAGE,
The balance in the Sinking Fund on December 31st, 1921 was
t2, 606, 318.20. Adding the amounts shown opposite the year 1921 on each
of the bond cards described above, it is found that the Sinking Fund should
10.
now have a balance of approximately i^ 7, 600, 000* on December 31, 1921.
This calculation indicates a shortage of .^5,000,000 between the amount
now on hand in this fund and what should be on hand if the nrovisions of
each legislative act had been complied with, and this shortage will b6
further increased Oui'ing 1922 •
There should have been deposited for 1922 the sum of
11,392,893.25, and the levy has only been for 3 mills or about :?788,000
together with expected earnings of about ^100,000 - from which is to be
therefore
deducted the maturities for 1922 of ;|557,000, ,it will be seen that the
difference at the end of 1922 (before which timo it will not be possible
to make further levy) will be approximately .-^6,000,000, as follows:
Present Shortajje ;$ 5, 000, 000
Required deposit for 1922 1,392,895 $6,392,893
3 Mill levy will produce(est . ) 788,000
Earnings " * " (est.) ' 104.000
— ETc'^acr
Deduct for Maturities 557 ,000
Sinking Fund will gain 335,000
Estimated Shortage in S. F. Dec. 31, 1922 - -$6,057,893
The amounts of the required annual deposits in the Sinking
Fund for each year are shown in the table following. These totals are
arrived at by adding the annual denosit for each issue of bonds during the
balance of its life.
The table also shows the estimated assessed valuation based on an
annual increase of 3^ and the necessary millage to provide the required
annual deoosit*
* This total is arrived at by figuring all bonds as sinking fund bonds with
the exception of two serial issues of sewer bonds and one serial issue of
school bonds (1921) which matures in equal annual payments of $41,000.
There are several issues of bonds which might be classed as deferred
serial bonds, notably the issue of 1920(Schools)f or s* 2, 000, 000 which
matures in irregular amounts in non-consecutive years. If such issues
as this are classed as Serial Bonds and only the amount of the maturity
for any given year be included in the sinking fund requirement for that
year it will lessen by a considerable amount the present required
Sinking Fund Bdlance.
The Bureau has preferred to base its calculations assuming that all
bonds, other than the exceptions noted, be classed as sinking fiand bonds,
but it has not overlooked the possibilities of the other method of
calculation. 19,
ESTB^ATED ANNUAL ASSESSED VALUATIOM AWD MILLAGE.
REQUIRED
ESTIMATED
ESTDIATED
ANNU/i.L
ASSESSED
REQUIRED
YEAR
DEPOSITS
11,282,211.16
VALUATION
1272,000,000
MILLAGE
1923
4.70
1924
1,140,544,34
281,500,000
4.
1925
1,043,082.82
291,500,000
3.30
1926
930,578.85
301,500,000
3.10
1927
851,945566
312,100,000
2.70
1928
730,064.41
323,000,000
2.30
1929
668, 110. 03
334,300,000
2,00
1930
620,055.04
346,000,000
1.80
1931
588;i71.90
358,100,000
1,65
1932
545,451.87
370,700,000
1.50
1933
508,119.65
383,700,000
1.30
1934
480,278.39
397,100,000
1.25
1935
448,964.93
410,900,000
1.10
1936
418,588.82
425,300,000
1.00 .
1937
393,719.95
440,100,000
.90
1938
366,943.50
455,500,000
.80
1939
343,805.53
471,500,000
.70
1940
289,427.35
488,000,000
.60
1941
264,288,82
505,100,000
,55
1942
204,555.08
522,800,000
.45
1943
167,812.84
541,000,''X)0
.35
1944
153,599,47
560,000,000
• 30
1945
127,241.91
579,600,000
.25
1946
113,885.57
599,900,000
.20
1947
98,967.54
620,900,000
.15
1948
85,103.69
642,600,000
.12
1949
76,338.80
665,100,000
.11
1950
62,182.48
688,400,000
.10
1951
53,000,00
712,500,000
.08
* NOTE: Based upon the annual increase in Assessed Valuation for
the past 30 yoars, and in agreement with the estimates of
various financial officers, 3-|% has been set as being a
conservative annual increase rate during the next ten years
and it is to bo expected that the rate of increase will be
somewhat in excess - although attention is called to the
fact that the 1922 valuation is $1,200,000 less than the
estimated amount used in the tables on subseo^uent pages
of this study.
20.
54 EFFECT OF SINKING FUND ON BOND PRICES
Ylhether or not the difference in the amount which should be in
the Sinking "Fund has a direct bearing upon the price offered to the City
of Minneapolis for its bonds by the various firms purchasing them, is a matter
well worth consideration*
Interviews writh officers of bonding houses indicate that the
market for Minneapolis bonds lies chiefly in the states of I^assachusetts
and New York. The legality of the purchase by savings banks in the above
states of the City's bonds is governed by the nearness to which th^ city
is approaching the bonding limit fixed by statute. At the present time
the bonds of this oity are not a legal purchase for savings banks in th«
state of Massachusetts due, no doubt, to the small margin left before
Minneapolis reaches the limit of its bonded debt.
The balance in the Sinking Fund has a direct bearing on the net
debt, inasmuch as the balance in that fund is deducted from the gross bonded
indebtedness.
A good example of the value of an adequate sinking fund is shown
by the report of the City of Toronto (1920) which shows a gross bonded debt
of ^$103,819,125 ag&inst which there is in the sinking fund C28,366,344 - or
approximately Zb% of the gross debt - while in Minneapolis the sinking
fund is only &fo of the debt after deducting all bonds to be paid by
special levy.
21.
*• LI I-gT OF BONDED DSBT
Prior .to Novomber, 1920, Minneapolis had. the distinction of being
the only city, of its class not under Home Rule and many laws were passed
©specially applicable to Minneapolis because of that distinction, altho so
framed in wording and character as to ]pe clasced as "Gonoral Laws,''
However, upon the adoption of a charter, the City came within the
jurisdiction of thoso laws applicable to cities of the first class under
Home Rule, one of which (sec. 1346 G. D. 1913) stipulates that the aggregate
bonded indebtedness may not exceed five percent of the assessed valuation
unless the chai-ter provide for the submission of proposed issued in excoss
of 5% to the majority approval of the voters. In no caso mcy the limit of
bonded debt exceed lOj^ of th^ assessed valuation.
Inasmuch a^r. Minnoapolis had already passed thu b^o limit provided
by law and liad arranged for and advortised a sale of bonds in Noi^ombcr, 1920 -
with insufficient tiiac to provido for a spocial cloction for submission to
the voters - and inasmuch as the 10^ limit had already been excooded if
moneys and credits were not included in figui'ing "assessed valus.tion", it
became imperative that legislative action be taken at once to clear the
situation*
A curative act was thereupon prepared and submitted to the
Legislature and adopted by that body amending the Home Rule Act (Sec. 1346)
omitting the clause with reference to the 5% limit and the necessity for
submission of bond issues to the approval of the voters and also definitely
including moneys and credits into the total assessed valuation.
Had this law not been enacted by the Legislature, Minneapolis would
have found herself in the position of having exceeded the bonding limit
fixed by statute, with a Ic.rge issue of bonds for needed improvements
(many of which were in course of construction) advertised for sale which
could not be disposed of because legal advisors of prospective purchasers
22.
questioned the legality of the sal© under existing conditions.
For the year 1922 this total assessed valuation will be
^!!360,471,116 whioh would permit of a total bended debt of <J36,047,1H.
(See pages 12 and 13 for net debt).
A table has been prepared shovring the estimated increase in
valuation for bending purposes - based on an annual increase of 3-^ percent,-
and in proper columns is shovm the bonding limit and the largest annual
issue T)ossible in order to keep within that limit*
This ten year table is made on the aasurantion that all future
bond issues v/ill be " Seri al Bonds" payable in equal annual installments
for 30 years, where the life of the improvement -.warrants such issue.
This agrees with the plan informally adopted, by the Board of Estimate
and Taxation, referred to on page 25»
23.
TABLE NO. 6 3H0vfIKG BO^TDTMU Ll?,tIT AhB
A^IOUUT CFBairOS M{TCHjfAT BT, "IS'S UED Ar-T^Tl/^riLY " 70R A TEN
mR ~i?5RI0D b7:s":T)'"0^4 '.W II JCr1:AG"E Tn .^^'s'ES" S ED VALO/' TIOri
A"f r-5^ R/JfE . ' ■"
1
2
Assea'sed
3
Year
Valuat ion
Bonding
for
Limit
Bonding Purposes Fixed By Law
(la/o of Col. 2)
1921
ret
Bonded Debt Decer
1922
360,471,116
36,047,11^
1923
373,087,605
37,308,760
1924:
386,145,671
38,614,567
1925
399,360,869
39,966,086
1926
413,649,000
41,364,900
1927
428,127,715
42,612.771
1928
443,113,185
44,511,318 V
1929
458,622,14?
45,862,214
1930
474,673,922
47,467,392
192 1
49;, 287, 610
49,128,761
4 5 6
Amcnant (est . )D8duct Net
That l!ay For Bondt-d Debt
Be Issued Bonds *At
Eaoh Year Redeemed End of Year
(Compare '^"^^J^ C<3l3
4,000,000 557,000 31,121,37'3
4,000,000 368,833 34,252,546-
4,000,000 717,666 37,534,876
3,000,000 1,464,000 39,070,876
3,000,000 1,252,000 40,818,876
4,000,000 2,783,000 42,036,876
3,300,000 1,520,533 43,816,343
3,000,000 1,615,333 45,201,010
3,000,000 1,413,333 46,787,677
5,500,000 1,707,533 48,580,344
5. THE THREE-I-^I LI- LEVY AND ITS LIMITATIOHS
Whxler tna various legislative acts provide that a "sufficient
amount be levied annually to provide for the accumulation of a sinking
fund for the redemption of auch issue at its maturity" - - - it is also
true that the Minneapolis Charter provides that the Sinking Fund shall be
maintained by an annual levy of 1 mill for each dollar of the assessed
l?.r£.3l3'
valuation. This levy was increased to 3 mills.^as a result of the
Sinking Fund study made by the Bureau of Municipal Research in 1916.
The Tax- levying body has been maintaining the Sinking Fund by
means of the one mill and the three mill levies rather than following
strictly the provision of eaoh legislative act already referred to on
pages 4 and 5 of this report. 24.
The prasent contemplated plan provides that a 3 mill tax on
the Assessed Valuation of Real and Personal Property be levied and the
receipts deposited in the Sinking Fund to provide funds for the
redemption of the present outstanding bonds. There is a tacit under-
standing by members of the Board of Estimate thi-.t all future bond issues
shall be matured serially -i.e. equal installments of the total issue
shall be retired annually beginning one year from date of issue - the
whole amount to be paid within 30 years.
In the years 1922-3-4 this 3 mill levy, together with estimated
earnings on the present Sinking Fund and interest on dofcrrcd payments
in the Revolving Fund (estimated by the Comptrollor at about "'100,000
annually) will provide an amount in excess of the amounts of bonds maturing
in those years.
In 1925 and again in 1927 ( "^a graph on page 8) the amounts
maturing far exceed the 3 mill levy and the earnings a^iailable for either
of those years,
Hcwrever, if a three-mill tax is levied annually and placed in
the sinking fund - and AN ADDITIOIAL LEVY _IS !i\DE TO RSDEmi ALL FUTURE
ISSUES , this 3-mill plan will provide the necessary funds to rodcom all
of the present outstanding bonds as shown on the follaving table:
25.
TABLE NO. 7 SH(WING CONDITION OF SINKING FUND
BASED ON 3-MILL LEVY TO C/VRE FOR PRESiiJiT OUT-
STANDING BOiJDS ONLY, ASSESSED VALUATION
FIGURICD ON 3^ ANNUAL INCREASE.
1
2
3
4
"" 5
6
Estime.tod
3-.Mill
Deduct
Balance
Necessary
Year
Valuation
Levy and
Maturities
in
Annual
Real & Pers.
Estimated
of present
Sinking
Levy
Property
Earnings
Indebtedness
Fund
(in mills)
1921
Bala;
nee in Sinking
Fund Deo. 31
- 2,606,300
1922
?:62,60O,0O0
888,400
557^,000
2,937.700
*
1923
272,000,000
916,000
735,500
3,118,200
2.70
1924
281,500,000
944,500
451,000
3,611,700
1,65
1925
291,300,000
974,100
1,064.000
3,521,800
3.70
1926
301,500,000
1,005,000
762,000.
3,774,800
2.60
1927
312,100,000
1,036,300
2,182,000
2,629,100
7,00
1928
323,000,000
1,069,100
787,200
2,911,000
2.50
1929
334,300,000
1,103,000
772,000
3,242,000
2,30
1930
346,000,000
1,138,100
470,000
3,910,100
1,40
1931
358,100,000
1,174,500
664,000
4,420,600
1.90
1932
370,700,000
1,212,100
918,000
4,714,700
2.50
1933
383,700,000
1,251,000
1,075, COO
4 ,.890, 700
3.00
1934
397,100,000
1,291,300
1,090,000
5,092,000
3.00
1935
410,900,000
1,333,000
777,000
5,648,000
1.90
1936
.Ra6,0OO,OOO
1,376,000
577,000
6,447,000
1.30
1937
440,100,000
1,420,500
1,576,000
6,291,500
3.50
1938
455,500,000
1,467,000
1,210,000
6,548,500
2,70
1939
471,500,000
1,514,500
2,635,000
5,427,500
5.60
1940
483,000,000
1,564,000
1,142,000
5,849,600
2.40
1941
505,100,000
1,615,300
3,151,700
4,313,300
6.25
1942
523,800,000
1,668,300
2,232,000
3,749,600
4.30
1943
541,000,000
1,723,200
673,300
4,799,500
1.25
1944
560,000,000
1,780,000
1,503,000
5,076,500
2.90
1945
579,600,000
1,839,000
697,500
6,218,000
1.20
1946
599,900,000
1,900,000
807,000
1.35
1947
620,900,000
1,963,000
775,000
1.20
1948
642,600,000
2,028,000
409,000
.76
1949
665,100,000
2,095,400
935,000
1,50
1950
688,400,000
2,165,200
573,000
.85
1951
712,500,000
2,237,500
53,000
31,244,200
•
From the above table (col, 6) it will be seen that a 3 mill
levy, plus earnings on amounts in the Sinking Fund, will
provide sufficient funds to safely carry over the peak
years of 1941-1942, following which the maturities fall below
the estimated earnings for each year* In column 6 it is
shown that the necessary annual levy is less than 3 mills
in all but eight years, during the 30 year period.
26.
If, hcwever, it is planned to issue bonds during the next
several years up to the limit shown on page 24, (col. 4) without in-
creasing the 3-mill levy for the Sinking Fund, this Bund will be exhausted
during the year 1928 as will be seen from the following table:
TABLE IJ0.8 SHOWING CONDITTON OF SINKING FOND
BASED ON 3 MILL LEVY TO CARE FOR 'PRESENT IN-
DEBTEDNESS AWD FUTURE ISSUES OF SERIAL BONDS
(SEE TABLE NO. G PAaa.24). AS..i']S:.JVD VV. ••••T:) <
FIGURED AT 3^i ANNUaL INCREASE.
1
2
.')
4
5
6
Assessed
Add 5-mill
Tot,al
Deduct
Balance
Year
Valuation
Levy a..v?.
Sinking
Total
In
?)^o Annual
EstiiTvn.tocT
Fund
Jiaturities
Sinking
Incroaso
Sarni nj;s
Available
•Fund
19ai
Balance in Sinki
rkg Fund December 31st - -
2,606,300
i922
262,800,000
888,400
3,494,700
557,000
2,937,700
1923
272,000,000
916,000
3,853,700
868,800
2,984,900
1924
281,500,000
944,000
3,928,900
718,000
3,210,900
1925
291,300,000
974,000
4,184,900
1,464,000
2,720,900
1926
301,500,000
1,005,000
3,725,900
1,252,000
2,473,900
1927
312,000,000
936,300
3,436,900
2,783,000
653,900
1928
323,000,000
977,000
1,630,900
1,520,000
110,900
1929
334,300,000
1,003,000
1,113,900
1,615,000
501,100*
1930
346,000,000
1,038,000
1,414,000
376,000*
1931
358,000,000
1,074,000
1,708,000
634,000*
* Deficit.
Note; The Balance in the Sinking Fund (Col. 6) plus the 3 mill levy
and B;arnings (Col. 3) makes up To-Lal Sinking Fund (Col. 4)
fran which is deducted Total '^'Iaturities (Col. 5) to produce
final Balance in Sinking Fimd (Col. e*).
27,
III. MODERN TENDENCIES IN FINANCE.
That many cities and states have coine to a clearer
realization of the need for a closer supervision over their Bonded
Debt is evidenced by the passage of Laws and the adoption cf Financial
Codes in various st-atos vrhinh define in detail ViOw bonds may be issued,
their clacsif ication, term, maximum indebtedness, and method of payment.
Three of these newer theories will be mentioned.
1. The Financial Code of the State of New Jersey - adopted
in 1916
2. The ''Pay-as-you-go" plan of financing permanent improve*
ments. adopted by the City of New York in 1914.
3* Serial Bonds and their relative cost.
28 •
^» TFIE ^ITO Jfflyf FINMC IAL C ODE.
Thi) state of New Jersey, in tlio Financial Code en^ct0d by its
Legis?_ature in 1916, has lod the way for other states in the matter of
directing how homi.G iimy be issued - classifying the character of each
public iiTiprovenTPnt, and the term of the bonds to be istjved for the payment
thereof.
Tills law also provides:
That no bonds shall be issued to pay for Current
Expenses or to fvnd any indebtedness incurred therefor.
Tliat all bonds shall nature in ann lal installments,-
no installinent to be for more than 50 percentum in
• excess of tlie amount of the smallest prior installment*
(This periiits an increasing payment on Prinoipal as the
buTden of interest becomes lessened*)
A law similar to that of Wevr Jersej*- is beiiig prepared for the
Ohio State Legislatvire, which has an additional provision that an iiiprove-
ment whose life is not >iiore tlTan five yea rs shall be i^iJi©^ " Current
Improvement" for v/hich no bonds iiiay be issued, but which shall be paid
for out of ouxront tax lovj',
Ner^v York State passed a law November 2, 1920 by a 2 to 1 voto -
requiring that all dobts of the state except te.fporary loans, etc.-— — -
"shall be paid in equal installiients the first of
which shall bo payable not more than ono year and
the last of v.'hich shall be payable not more tlian
50 years after such debt or portion tboroof shall
\vxvQ been contracted."
and further provides, that
"llo such debt hereafter authorized shall be con-
tracted for a period longer than that of the
probable life of the %vork or object f|r '//hich
the debt is to be contracted."
In tho folia, ing brief outline of tho olassJ^'icatioA included
in the Kev7 Jersey Law, and also in ttie proposed Ohio l^u it will be noted
that different tj^pes of building and other construction ^ore classified under
29*
various terms of bor^d Issues:
50 - Year Bonds may bo issued for;
Acquisition of Land for Parks-
Elimination of Grade Crossings-
40 - Year Bonds may be issued for;
Tho construction of a Sewer System^
The construction of a Water Supply System-
Buildings of Fireproof Construction-
(Additions to such buildings to be 30-Year Bonds)
30 - Year Bonds may be issued for:
Acquisition or construction of a Gas System-
Acquiring lands for Playgrounds-
Buildings of non-fireproof construction-
(Additions to such buildings .o be 20- Year Bonds*
Bridges (including retaining walls and approaches
of Stone, Concrete or Iron construction..)
Acquisition of land for Roads, Streets, Highways,
Elimination of curves, or Grading Culverts,
Bridges or Retaining Walls.
Installation of Fire or Police Alarm, Telegraph
and Telephone System*
20-»- Year Bonds may bo issued fort
Acquisition or construction of Electric Lig)Kt System,
and equipment, or machinery, or apnaratus.
Buildings - Frame or brick veneer-
(Additions to such buildings same as 15 year Bonds)
Paving! -Blocks or Sheet Asphalt laid on concrete
foundation.
Concrete if not less than 6 inches in thickness.
15 - Year Bonds may be issued fort
Paving: Bituminous concrete,
10 - Year Bonds may be issued for:
Fire engines, trucks and hose aiiri other vehicles in Pire
Department* Ambulances, Patrols or other municipal
vehicles •
Paving - Water-bound Macadam.
Curbing or sidewalks of brick, stone or concrete*
All equipment - apparatus and furnishings (not
previously specified)
• Incineration Plant and equipment or machinery.
5 - Year Bonds may be used for:
Paving! Sand or Gravel
Service connections - Sewer, Water, Gas from street to
property line*
S0«
2 , THE " PAY-AS-. YOU- Q Q" PUN
There is a grcwing tendency in rnany citios throughout the
country to place !!unicipal fxiiances on a Cash Basis or on what has been
tormod a "PAY-AS-YOU-GO'' nian.
Briefly, t-iis nlan as adq)ted in Nmr York contemplates the financing
of all non-revenue producing improvements out of current taxation, and
provides the method Ly which a city adopting such a plan may arrive at the
lOC^ current taxation point, by gradinl ^tepc coverinp; a period of four
yoars. This is moi-e clearly illustrated by the following cxcorpt from
that plan adootod in the year 1914:
Sec, 1. The post of all iranrovements of tho rovsnue producing
class, such as rapid transit, docks, railvray and vater terminals and 'vater
supply, shall bs defrayed by the issue of fifty year cornorate stock as
heretofore.
Sec, 2. The cost of all permanent impro\-e'nents other than those of
the revenue producing class, shall be financed as follows:
(a) Those author i2ed during the next succeeding year (1915)
shall be paid for, three- quarters by the issue of fifteen year
corporate stock; stock so issued shall mature either in not more
than 15 years, amortized as provided by lav;, or in equal annual
installments, during a period of not more than fifteen years. The
remaining one-quarter of the cost of such improvements shall be paid
throug)^ the medium of a one year bond, payable from the next annual
tax Budget.
31.
(b) Those authorized in the year 1916 shall be paid for,
one-half by the issue of corporate stook, maturing as aforesaid.
The remaining one-half of the cost of such improvements shall be
paid through the medium of a one-year bond payable from the next
annual tax budget ^
(c) Those authorized in the year 1917 shall be paid for,
one-quart er by the issue of corporate Stock as aforesaid. The
remaining three-quarters of the cost of such improvements shall
be paid through the medium of a one-year bond pajrable from the
next annual tax budget.
(d) Those authorized during the year 1918 anu in subsequent
years shall be financed through the inclusi;Jn of the entire cost
thereof in the c.nnual budget of the city except the revenue pro-
ducing imp^'ovements hereinbefore mentioned.
Such a pl^n, if adopted :n Minneapolis, would subject all
proposed future issues of bonds to a very careful scrutiny as to the
urgency of the need of the contemplated improvement •>
3. SERIAL BONDS AND THE I R REUTIVE COS T
Throughout all the plans being formulated in other cities and
states looking toward a solution of their financial problems there is
found in each instance the suggestion or .direction that ell bonds be
issued as Serial Bonds payable in annual installments during the life of
the issue.
The reason for this stipulation is that city officials have too
often been lax in their duty to levy sufficient taxes to create an adequate
sinking fund for the amortization of bonds as they became due, frequently
32.
necessitating tho refunding of loans ♦
There are three distinct methods which may be followed in the
payment for public ImprcvementG, viz:
a* The Pay^as-you-tro method , which providoc that the debt be
paid from direct taxation not latur than one year after it
is incurred".
RESULT: High tax levy for debt redemption and a
minimum tax levy for interest carrying charge.
b» The Sinking Fu nd mothod , which provides that the burden be
spreaT'ovLr a period of years, annual deposits being laid
aside to accumulate at interest to Provide an adequate sum
at maturity d^-te. The interest on the whole debt shall be
paid ann^oally.
RESHLT: Lc/r tax levy for debt redemption and
maximum tax levy for interest carrying
charge »
c» The Sorial method, which provides for the redemption of a
por'tTorr'(S'"th"e~?ebt annually from tax levy, which automatically
reducer the annual interest charge.
RESULT: Medium tax levy for debt redemption and
gradually reducing levy for interest
carrying charge.
The Serial method of debt retirement carries with it the surety
that the debt will be paid as it matures, inasmuch as the annual amount
due is at all times known and the amount to bo levied is not left to the
discretion of the tax-levying body, which is the case under tho Sinking
Fund method., as practiced in Minneapolis .
33,
r/. PROPOSALS FOR THE FUTTJRE.
!• CO^^C LIB IONS
In the foregoing pages, the Bureau ha? endeavored to analyze
the present status of the Sinking Fund and the causes therefor # The
facts gathered lead to the following conciusions:-
1» That the plan of lavying a mil lage tax for th o Sinking Fun d
(one mill annually prior to 1917 and three mills annually thereafter)
is n o t in accord with tho usu al pr ovisions of tho Bond \cts of tho
legisla ture, and the legality of such plan is open t o quostion. (see
reference to Supremo C^ourt decisions on page 4.)
2. That there i s an inadequate a mount in the Sinking Fund duo to
the fol lo ving causes:
a. Failure to make proper annual sinking fund levies,
based oii amortization tables, sufficient to prc^rido
funds to pay for each issue of bonds at maturity*
b. The issuing of short term (f ive-six-sevon-ton and
tv/elve year) bonds for impra'.'emcnts whosu life v^ar-
ranted the issuance of 25 and^ 30 year bonds, causing
an undue depletion in past years and "peak loads" in
the future.
0. The issuing of bonds for a deficit in current expenses
■vTithout providing a special levy for their redemption,
putting a direct and unwarranted burden on the Sinking
Fund .
3. That if there had been a strict compliance with the law as pro-
vided in each bond act, there would noiT b e in th o Sinking Fund a total of
(approximate ly)0 7, 600, 000 (see page 19), an amount .'^^ 5., 000, 000 greater than
the present Sinking Fund which would have applied as a reduction against
the net debt and also have provided ample funds to protect all outstanding
bonds.
34,
stated briefly it appears as follows:
Present Net Debt (See table pages 12 &13) !f!27,678,375
Deduct for required difference in Sinking
Fund 5,000,000
True Net Debt, based on re-calculation $22,678,375
Protecting the re-calculated Not Debt there would have been
a Sinking Fund of ;i7,600,000 or 25^ of all bonds to be paid from that
fund, (131,244,200 - December 51, 1921)
The importance of the above figures becomes apparent in the
statement that a net debt of ;i?22,678,375 would have given a bonding margin
of §13,600,000, ample for the needs of the city for many years to come,
without the necessity of the curative legislation of 1921 to in6rease the
margin by including Moneys and Credits as part of the assessed valuation.
4« That there is a ^rcat need for a broad p lan which would
effectiv ely restrict borrowing. It is evident that the present laws
.designed to restrict borrowing and place a limit on debt have failed in
their purpose. For example:-
(a) The statutory limit of ^% governing the indebtedness
of cities under 'Home Rule was removed in 1921 when
Minneapolis, by virtue of adopting a Home Rule Charter
found itself beyond that limit.
(b) Bond Acts providing for definite sinking fund deposits
have been ignored.
(o) Bonds have been issued to defray deficits in Current
Expense, using a wrong method of payment (q. v. page 9)
Each improvement for which bonds are to be issued should be
carefully soritinized and its value and desirability determined. If it is
of sufficient urgency to warrant the issuing of bonds, payment should be
arranged so that othor needed improvements in future years may not be
jeopardized by a fast approaching debt limit (compare the present
status with the condition set forth in paragraph 3 above.)
35.
2 . POSSI BLE COURSES COMPRISING FIVE PLAM_S_ OF ■reO CEDURE
There are jjariy courses open for the future control pfHhe
issuance of bonds and njeans toward their redemption. A number of theso
plans are ©numerated on the follov/ing pages,
1, Serial bo nds may be issue d to the a mount show n under column 4
of tab le on page ^4 and pl ace the burd en of their redemption on the Sinlcing
Fundt
RESULT !
The effect of this will be to fully deplete the. Sinlcing
J^rnd in 1928 and necessitate an additional tax over the
3 mill levy.
(See table on Page 27)
^ • Pay all futiye bon d issue maturities out of the Sin lcing Fund
and refu nd some or all of certain sh ort term issues^ of 1915 for an additional
term of 18 years which were issued for iiiprovements whose life warranted the
issue of longer term bonds, but which no\7 fall due in 1927, visi-
Water 100,000
School Buildings 6754OOO
Hospital Buildings ICC, 000
Parks 218,000
Permanent In^rove-
ment 75,000
Bassetts Creek 50,000
1,218,000
RESULT;
This will lave the effect of delaying the depletion of
the Sinlring !'\!nd balance until 1931 or possibly unt41
1932 depending upon the amount of interest earnings,
during the period 1922-1931,
3, Issue Serial Bonds to the a mou nt shown on column 4 o f the
table on Page 24 and j)rovide additi onal t ax levy each year over_ the pre^sont
5 mill le vy for the redeniption of s uch bonds a .s^ and_ vfhsn iss^dj^
RE5ULT:
The effect of this plan v/ill be that the present 3-mill
levj"- will provide an amount greater than necessary to
redoea the present outstanding bonds as th^ matvire.
(See table Page 26.)
36.
4. The "Fa^r-As-Y^-^'o" Flan.
Fa ke a single budget fo r all estiinr.ted exp enditure s, both
o urrent end p er^-nanent irnpro^/ement. Then '
a. Ijevy the Icrost necessary amount each yoar to provide for out-
standing Cehi infeturities, including t.ll Sinking Fund, Serial
and Soecial Levy Bon-'ls and Certificates. (See first two coluirins
in Schedule Vlo.n ""'.- page 39),
b. (a) Provide for the payuient of all permr.nont imnrovements
authorized for the year 1923 by issuing short«torm serial
bonds for oighty '^SO) per cert o.-^ the total of such author-
ized amount - bonds to mature in equal annual installments
beginning one year from their date of issue. The ri^maining
tvrenty (20) percent to be financed by a one-year bond payable
from taxation.
c. Provide for sixty (fiO) percent oi all nennanent irnproveinents
authorized for the ye^r 1924 to be financed by short-term serial
bonds (maturing as stated in paragraph "a") and the remaining
forty (40) percent by a one-year bond paj'able from taxation.
d. Provide for forty (40) percent of all permanent iuprovement
authorized for the year 1925 to be financed by short-term
serial bonds (mr.turing as per paragraph "A") and the remaining
sixty (60) norcent by a one-year bond payable from taxation.
0. Provide for ti^'^nty (20) porcent of ail nerman^nt improvement
authorized for the year 1926 to do finar.ced b"- short-term serial
bonds (maturing as per paragraph "A") and the remaining Eighty
(80) pei ^ent by a one year bond payable from ta:<B.tion*
f . All of the permanent improvement authorized for the year 1927
and for subsequent years to be financed b/ a one year bond
payable from taxation.
37.
5» Levy the necess ary amourrt each year to provide sufficient
funds to pay present and future mat urities. For the next
ten years such a plan will require approximately the fol-
lowing:
TABLS NO. 10 SYSmmO REQUIRED LEVY TO RETIRE
PRESENT AND FUTURE BOND MATURITIES.
"T 2
Bst .Yearly
Tear Levy to retire
present deist.
(Soe table 7 p. 26)
5^ 4 6
Est. Yearly Yearly levy to Total for
Levy for Retire future deht Retire-
Special Based on Schedule . ment
Issues. P. 24 Of debt.
1925
2.70
1924
1.65
1925
3.70
1926
2.60
1927
7.00
1928
2.50
1929
2.30
1930
1.40
1931
1.90
1332
2.50
RESULT:
2.15
2.15
2.15-
2.15
2.15
2.15
2.15
2.15.
S.15
2.15
.10
1.00
1:35
1.60
1.90
2.25
2.50
2.75
3.00
3.05
4.80
-7.20
6.35
11.05
6.90
6.95
6,30
7.05
7.70
The weakness in such a plan is that the rate of levy in
Column 4 is forever advancing as the accumulation of
annual serial maturities increase, and the heaviest
burden of redemption of present debt (with the exception
of 1927) lies in the period 1937 - 1942, which (in 1941)
will require a 6.25 mill levy, on the then estimated
assessed valuation.
(See table Page 26.)
39,
3. THE RECO Mil MDAT IO N OF THE BUR E/.U OF MUNICIPAL RESEARCH.
In -the previous chapter several possible courses have been
outlined. Soma of the plans provide a temporary relief but none" of them
points the way to a pormanont solution of the problem confronting the
#
Sinking Fund.
A permanent solution should include provision for the levying
of sufficient taxes to:
a. Frovido annual Sinking Fund deposits required by present
outstanding Bonds.
b. Pay the City's portion on all Special Assessment Bonds.
c. Pay for oach yoar*s portion of futtiro Serial Bonds.
d. Replace the shortage in the Sinking Fund Balance in a manner
v/hich vfill protect the debt and make the burden of taxation
as light as- possible. ,
To that end the following plan is recommended:
1. Adopt a classification shovring the term for which bonds may be
issued for the different public improvements to bo made or asset to be
acquired. The New Jersey Law appearing olscwhoro in this report iB
recommended as a basis for such a classification,
2. Provide that only serial bonds may be issued in the future. These
bcaids should be classified as per plan in the preceding paragraph and
to mature in equal annual iustallmonte beginning one year from date of
issue.
3. Provide that all Bodies or Boards having authority to plan
improvements which may call for the issuance of bonds, shall adopt a
plan covoring a three or five year period outlining the contemplated
improvemonts and their estimated cost.
40.
4« Adopt a sir.gle Budget so that all contemplated improvements
v;ith their attendant financial bui^den of interest and debt redecftion
may be considered :'.n conjunction \rita the annual Budget for operation
and maintenance,
5« Provide for adequate debt redemption as follows:
a# liake the roquii-ed anm^al deposits in the Sinking Fund based
on amortization tables as coiuputed on page 20 of this report,
estiinated under coluinn ? ne:-:t page.
b» In addition,, Iot"/ otiq mill annually until all the present
outstanding bonds are :^odeei;ied, as a special levy to care
•for the present shortage in the Sinking Fiindi> This
becoires necessary in order to provide su.f fie lent funds to
redeem bonds as they mature, estimated ujider column 5, next
p&g««
c« Levy annually tlie ai-nount necessary to redeem the iiiaturities
of Special Issue bonds (Elwell, School Deficit "and others)
estimated under colui^in 3, next page.
d# Levy annually tho amount necessaa^y to redeem the maturities
of future isGuerj of serial bonds as they fall duo, estimated
imder column 4. ne:r:t page,
6« Grant authority to proper body to refund bonds
To carry out such a plan will require an anjiu^l levy of
approximately 7»75 mills as aigainst the 4.60 mills levied for 1922. A
ten-year table showing the estiinated necessary levies follovTs:
41.
TABLE NO. 11- SHOVVING ESTIMTED LEVIES TO FINANCE
SINKIl'G FUND AS EER PLAN RBCOMh/iENDED BY THE
BUREAU OF MUNICIPAL RESEARCH
Required Special
Year Sinking Fund Issue
Deposit Ifeturities
(See Table N o. 5 _g ,_Z0}
1923
4.70
1924
4.00
1925
3.30
1926
3olO
1927
2.70
1928
2.30
1929
2.00
1930
1.80
1931
1.65
1932
1.50
RESULT:
2.15
2.15
2.15
2.15
2.15
2.15
2.15
2.15
2.15
2.15
New
Depos it
Total
Serial
For
Levy
Maturities
Sinking Fund
In
Sho?itage
Mills
.50
7.35
1.00
.50
7.65
1.35
1.00
7.80
1.60
1.00
7.88
1.90
1.00
7.75
2.25
1.00
7.70
2.50
1.00
7.65
2.75
1.00
7.70
3.00
1.00
7.80
3.05
1.00*
7.70
* Continuance rcoui/ed to 1151
The above plan provides for a ccxnnaratively even annual
levy- as the increase in the annual levy for future issues of serial
bonds is matched with the decreasing levy for present debt, -while the
peak loads in present maturities is cared for by the one-mill levy
(col. 5).
The new issues will be governed by the increased
assessed valuation. The figures are based on an annual increase of
32?^. If the actual increase proves to be in excess, it will permit
of larger issues of bonds ^> but it will also provide a greater sum on
the millage levied to care for their redemption.
42.
V.
1.
2.
COST YAUH.TIO-: OF CITY OVTJiiJD .PROPERTY*.
OFFICI/.L R3CCRD OF ALL BONDS ISSUED BY
THE CITY OF MINI.T^POLIS.
43.
1.
COST VALUATION OF lAND, BUILDINGS AND EQUIPtJENT
As of Docombor 31, 1920,
From Roco^ds of City Conptrollor.
Land
and
Buildings
Equipment
and
Material
Total
GENER.\L GOVERT^Ti'ETTT
City Hall (Cihy's Portion)
1,696,075.50
228,329.50
1,924,705.00
PROTECTION TO P3RS0NS
Firo
Polico
Armory
Building Inspector
& ?R0P?jPTY
's Dopt.
552,150.73
85,629.32
287,465.62
797,772.88
71,294.65
10,971.91
10,748,08
SANITATION
Inclnoration Pla.nt
Comfort Stations
Sewor System
& Station
173,807.77
22,398.22
102,463.19
13,071,420.33
22,398.22
13,071,420.33
■ HIGHWAYS
Ward Warohou.sos 138,282.47
Pavemont, Curbing, Trcos
Sidewalks
Ward Machinery & Paving Equipment
Bridges
16,883,887.38
2,983,253.18
421,165.42
3,594,318,07
138,282.47
16,883,887.38
2,983,253.18
421,165,42
3,594,318,07
CHARITIES, HOSPITAL ^
Hospital
Workhouse
Charitios
CORRECT I03?S
1,716,557.8^.
299,641.73
3,600.00
61,687,87
2,010.00
5,126.84
1,778,245.71
301,651,73
8,726.84
EDUCATION
Schools
Libraries
Art Museum
11,233,467.90
720,373.08
843,693.00
372,651.81
335,625.19
10,156.40
11,606,119,71
1,055,998,27
853,849.40
RECREATION
Baths
Parks
120,455.78
9,325,079.73
5,103.78
249,021,43
125,559.56
9,574,101.16
UTILITIES
Water Works
Wharves
1,418,310.3a 10,951,029.31
135,278.51
12,369,339.69
135,278.51
GENERAL
— .-■
36,232.18
36,232,18
TOTAIS
28,772,267.58
50,204,559.40
78,976,836.98
44.
2, OFFICIAL RECORD OF /'.LL BONDS ISSUED BY THE CITY OF MINNEAPOLIS,
Purpose of
Issue
Appraisal
Armory
Date of
Issue
1915
1917
19? 9
1905
Term
2&3
7
6
30
Rate of
Interest
4^
Amount
Matured
C10,000
Amount
Outstandin g
1913
26
1914
30
Bassett's Creek
1915
12
1916
5-25
1919
29-30
1872
20
1374
20
1875
30
1882
20
1887
30
1889
30
1903
30
1904
30
B ridges
1912
20
1913
26
1915
30
1913
21-30
1917
30
1919
30
1919
29
1920
28-29
1920
5-30
1874
20
1887
30
City Hall
1890
30
1891
30
1892
50
Comfort Station
1920
30
Elec. Lt. Plant
1911
30
Falls Imp.
1869
9
(East)
1870
12&15
Falls Imp.
1869
12&13
(West)
1870
13^15
1872
14-X8
4
C10,C00
4
16,000
^25,(500
4
ri50,COO
4
25,000
4
50,000
4
50,000
4
2,000
48,000
5
100,000
C'27S,oO<5
8
250,000
8
20,000
8
50,000 *
4%
76,oc;o
4
390,000
4
30,000
4
50,000
4
165,000
4
200,000
4
650,000
4
85,000
4.15
100,000
5
100,000
44
50,000
5
100,000
5
150,000
5
395,000
■ ^16,000
2,045,000
8
50,000
4*
250,000
4
200,000
44
250,000
4?
T?(5,11Ca
50,000
5
50,000
4
50,000
10
5,000
10
10,000
■ 15,000
10
30,000
10
30,000
8
84,000
T447CX50
45.
Purpose of
Date of
Rat^ of
Amount
Amount
Issue
Issue
Term
Interest
f.Tatured
Outstanding
■ "^ •"~*'
■ -«••
•••■"^ "■"•**' ' ^ •
1874
15
(i%
i- 12,000
. •
1882
20
4g-
10,000
1887
•30
4^
50,000
1890
30
4
15,000
1903
30
4
^ 100,000
1910
30
4
25,000
1911
10
4
25,000
1911
10
4
25,000
Fire Depart-
1912
20
4
25,000
ment
1913
10
4
25,000
1913
26
4
25,000
1914
30
4
25,000
1915
12
4
25,000
?.916
5- 11
4
32,000
1917
30
4
15,000
1919
6
4
20,000
^ 1^7,000" ■
517,000
Funding
1919
6-10
5
1,000,000
General Funrl
1907
30
4
100,000
1892
30
4
25,000
1893
30
4
75,000
1911
30
4
400,000
1915
5
4
125,000
-
1915
26
• 4
25,000
Hospitals
1914
30
4
75,000
1915
30
4
47,500
1915
12
4
100,000
1917
7-9-11
4
175,000
1918
3
4
14,000
1919
28-29
5
175,000
139,000
1,097,500
1885
30
4*
60,000
Library
1886
30
4
40,000
1913
30
4
40,000
1920
30
5
250,000
100,000
2^,OoO
Lookup
1887
30
4
30,000
1913
26
4
15,000
Municipal
1917
7
4
15,000
B aths
1919
15
5
25,000
1920
5-25
5
100,000
155,006
46.
Purpose of
Issue
Date of
Irsu:
Term
1883
50
1884
30
1884
30
1889
30
1892
30
in93
30
1902
30
1907
30
1908
30
1909
30
1910
30
Parks 1911
30
1911
30
1912
50
1G15
5
191!^.
26
191'!
30
1915
12
1916
30
1917
15&19
1919
11
1919
12-15
1920
3- 6
1881
27
1882
20
1883
30
1884
30
1885
30
1887
30
1889
30
1889
50
1890
30
1892
30
1903
50
1904
30
Permanent 1907
30
Improvement 1908
30
19:4
20
1911
30
1912
30
1912
30
1913
7
1913
26
1914
30
X9J.5
12
1916
5-29
1917
8- 9
1918
30
1920
6
1920
6-30
Rate of
I/iterest
4|fa
i
4
4
4
3*
4
4
4
4
4^
4
4
4
4
4
4
4
4
4
5
5
H
4$
4i
4-5
4
4
4
4
4
4
4
4
4
4
4'
4
4
4
4
4
4
4
4
4*
5
5
Amount
^fcl^.urod
Amouiio
Outstanding
75,000
200,000
100,000
22'S,000
165,000
40,000
20, COO
70,000
150,000
50,000
. 300,000
50,000
150,000
250,000
300,000
50,000
100,000
218,000
275,000
175,000
100,000
300,000
____ 300,000
763, 060 2,898,000
40,000
105,000
45,000
175,000
380,000
200,000
170,000
225,000
55,000
187,000
75,000
75,000
400,000
75,000
75,000
75.000
200,000
25,000
50,000
5,000
1,450, OOO"
50,000
250,000
75,000
230,000
55,000
175,000
50,»000
,4^ 0,000
4482,000
47.
Purpose of Date of Rate '-■; Anicvr+, Atiiount
(« Ipsue Issue Term Irtere st Matured Outstanding,
1887 30 f^% % 150,010 %
13G3 30 4 205, fCO
1809 50 4 150,000
4 250,000
4^ 245,000
4 150,000
4 175,000
4 175,000
4 250,000
4 250,000
4 •• 100.000
4 225,000
4 525^X0
s 4 50,000
11,050,000 #r,^rDO,oco ■
Playgrounds 1912 30 4 . 80,000
Police Station 1920 10-30 6 TS^C-OO
1871 30 7 125,000
Railway 1877 20 7 125,000
"260,006
1914 30 4 75,000
River 1S16 10 4 30,000
Terminals 1917 5 4 }}*^ ^?-
ISOO
30
1391
30
'ermanent
1901
30
Improvement
1903
30
Revolving
1S04
30
Fund
1907
30
1903
SO
1909
30
19]1
30
1^:^
30
1913
5
48.
Purpose of Date of
Pate of
Ainourt
Amount
Issue
1 3 s ue
1879
)
rerm
20
Interest
6
Matured
t 40,000
Outstandin*;
1881
12&25
4
72,000
1885
30
80,000
'
1887
30
4
50,000
'
1689
30
4
200, ceo
13S0
30
4
60,000
1895
30
4
$100,000
1896
30
4
100,000
1897
30
4
200,000
1899
30
4
200,000
1903
30
3*
200,000
1906
30
4
200,000
1907
30
4
441,000
1909
30
4
.
616,000
1910
30
4
576,000
1911
30
4
666.400
1911
30
^4
250,300
Schools
1912
30
4
700,000
1913
30
4
150,300
1913
7
4
125,000
1913
5
4
299,500
1913
10
4
500
1913
26
4
325,000
-
1914
30
4
600,000
1914
20
4
350,000
1915
20
4
100,000
1915
12
4
675,000
1916
5.
-29
4
10,000
390,000
•
1916
SO
4
85,000
1917
1.
-29
4
112,000
700,000
1919
15.
-28
5
i;§50,ooo
1920
6-
-10
5
250,000
1920
lO
-28
5
1,250,000
-
1920
2
-29
5
2,000,000
1921
1
-30
5
1,230^000
11,038,500
C 13, 505, 500
School Funding
1919
2-
- 5
5
100,000
300,000
1871
25
7
25,000
1872
30
7
25,000
1882
20
44
50,000
1886
30
4
35,000
,
1887
30
4
150,000
1888
30
4
90,000
1908
30
4
500,000
1911
30
4
275,000
1912
30
4
175,000
Sewers
1913
5
4
150,000
1913
26
4
150,000 ^
1914
30
4
200,000
1916
5
-29
4
5,000
145,000
1917
30
4
250,000
1918
3
- 9
4
9,000
141,000
1919
30
4*
200,000
1919
30
5
100,000
1920
1
-30
5
5.000
145,000
1921
1
-30
5
ir^A:6o6
350,000
£2.631.000
Purpose of
Date of
Rate of
Amount
Mi'nint
Issue
Issuo
Term
Interest
ifeitured
OutstLri3ine
Sundry-
1872
30
1%
;.. 20,000
/
Pur poses
19C8
30
4
t 67,000
Tax
1907
30
4
100,000
Rebates
1016
30
4
82,000
1919
6
4
18,000
^00,000
Voting
1903
20
4
116,200
Machines
1911
20
^-
42,000
r5"8,0(X5""
1868
10
10
40,000
1870
30
8
40,000
1871
20
8
55,000
1872
SO
7
40,000
1874
25
8
60,000
1878'
3
7
50,000
Water
1882
20
^?
125,000
Works
1883
30
4
414,000
1885
30
4
30,000
1886
30
120,000
1887
30
4
330,000
1888
30
4
170,000
1890
30
4
50,000
1895
30
4
200,000
V
1897
SO
4
400,000
1902
30
4
250,000
1903
30
3i
100,000
1911
30
500,000
1913
10
4
200,000
1913
2
4
S00,000
1915
12
4
100,000
■1,5"54;(50T)"
T7750,00(>
1887
SO
4
30,000
1915
5
4
27,500
Workhouse
1917
7-8
4
25,000
1918
5
4
25,000
•
1919
6
4
30,000
1920
3
5
35,000
57,500'
115,000
TOTALS
jD9, 280,000
a31, 244,200
Grand Total
Bonds
issued by C
ity » 1868-1921)
C.40,524^'200
50,
UNIVEESITY OF CALIFORNIA LIBRAEY,
BERKELEY
THIS EOOK IS DUE ON THE LAST DATE
STAMPED BELOW
Books not returned on time are subject to a fine of
50c per volume after the third day overdue, increasing
to $1.00 per volume after the sixth day. Books not in
demand may be renewed if application is made before
expiration of loan period.
R'^^ytiV
debt
T)f tliG siii]ting fund or X
city.
.cB Z 1932
G2S987
NJ9
UNIVERSITY OF CALIFORNIA LIBRARY
V
iii!
!ii;;a