Debt & Taxes

Among the numerous accomplishments of Alexander Hamilton was the founding of the city of Paterson, N. J. There at the Great Falls of the Passaic River in 1791 he picked "an ideal industrial site'' for a joint-stock venture called the Society for Establishing Useful Manufactures.* There the Colt family fashioned their first firearms. There in later days were built some of the first U. S. locomotives. There Inventor John Holland built a submarine in 1875. There today are the biggest silk mills in the U. S. And around those mills on the unsavory banks of the Passaic have been waged some of the bitterest and bloodiest strikes in U. S. history.

Last week the "Silk City of America" made a rare move in municipal finance by publishing as paid advertising in local and Manhattan newspapers an annual report. Occasionally a reform municipal administration draws up balance sheets or income & outgo statements which most editors regard as sufficiently newsworthy to print free. But a formal advertisement was something new to Wall Street. Mayor John V. Hinchliffe touched on Paterson history, Paterson population (141,000), Paterson business advantages, forgotten Paterson products (overalls, wall paper, airplanes, jute, art glass). During 1934 the city was run on a strictly cash basis, reporting a surplus of $414,001 after total expenditures of $7,998,000. Debt was reduced more than $1,000,000 to about $36,800,000. Tax delinquencies, carefully itemized, ranged from only 3% for the 1931 levy to 37% for last year.

The same day Mayor Hinchliffe's report appeared, Asbury Park, N. J. (pop. 14,900) was placed in the hands of the State Municipal Finance Commission, receivers, in effect, for profligate New Jersey communities. Bondholders were pressing for payment on their defaulted securities.

For most U. S. cities, last year was better than 1933. In a survey of 106 municipalities published last week by Manhattan's banking house of Lehman Brothers all but 24 reported an increase in tax collections, basic factor in all municipal finance. Nearly one-half the cities reporting gains, however, attributed the improvement in some degree to Home Owners Loan Corp., which doles out cash for back taxes in addition to refunding mortgages. Despite frequent crises over piffling sums for relief, New York City's credit is now better than at any time in the past four years.* More responsible than Mayor LaGuardia's Fusion administration, which has pared expense and tightened the budget, has been a marked increase in tax collections. A 2% retail sales tax helps to finance unemployment relief which now costs the city $5,000,000, the State $5,000,000 and the Federal Government $10,000,000 per month.

Milwaukee, where a Socialist administration has never impaired the city's credit, had difficulties with payrolls in 1932 but never lapsed on debt service. In the past year its bonds have recovered rapidly and currently sell higher than New York City issues.

Chicago's proverbial embarrassment runs back to boom-time levies which were invalidated by the courts, requiring a reassessment of the whole city. Taxes for 1929 were not levied until 1932, and for several years the city had practically no income at all from tax sources. Cook County and certain other overlapping divisions slipped into various degrees of default but the City of Chicago never actually missed an interest payment, even when teachers and firemen were living on script. Chicago bonds are still mediocre but the city expects to catch up on back assessments before 1940.

Philadelphia's credit is currently about on a par with Chicago's. Its budget is officially balanced, while the city fathers dip into sinking funds for unbudgeted expenses. and the State and Federal Governments shoulder every penny of unemployment relief.

One of the best names in the land is still Cincinnati, where a city manager plan sponsored by a son of the late William Howard Taft has kept both debt and taxes low.

Biggest municipal default of the Depression was Detroit, which was sunk by short-sighted financing. A large number of Detroit bond issues fell due during the Depression when they could not be refunded. But with the aid of big institutional investors, a refunding plan was finally executed, the automobile industry recovered amazingly and today Detroit bonds sell above 90-c- on the dollar against a low of about 25-c-.

Prices of Florida municipals have doubled and tripled with two seasons of booming winter trade. Some communities are hopelessly over-bonded but cities like St. Petersburg, Tampa, and Fort Myers have made notable treasury gains. Even Miami, which sank millions, in civic improvements, is now paying regular if reduced interest, and its bonds are selling above 80-c- on the dollar as compared to about 25-c- a few years ago.

One sore spot in municipal credit is Cleveland. The County (Cuyahoga) and a school district are already in default and once last year the city itself failed to meet its charges, though it made good within a few months. What real estate taxes the city has been able to collect will be reduced this year by a State law fixing the maximum tax rate at 10 mills per dollar instead of 15 mills. Sales taxes, gas taxes, utility taxes, amusement taxes will probably stave off disaster, for Cleveland's debt is relatively low.

*The Society for Establishing Useful Manufactures is often cited as a classic example of "special privilege." From the New Jersey Legislature Hamilton extracted a charter not only granting the Society water power rights but also immunity from local taxation and a city charter covering six square miles of nearby territory. Still in existence, but so closely owned that no figures are ever divulged, the Society now confines its activities to an electric power plant, which competes with big Public Service of New-Jersey. But periodically its tax immunity arouses the futile wrath of the tax-paying citizens of Paterson

*As good as the U. S. Government's is the credit of the State of New York. Last week State Comptroller Morris S. Tremaine sold a $45,000,000 bond issue at an average interest rate'of 2.3%--a record.

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