| Show C B OF FINANCE SINKING FUNDS I w By HAROLD P F. F GREENS GREENE Manager Bond Department Guaranty Trust Co of New York r Municipal bonds as American bankers bank bank- ers and Investors use uso the tho term comprise comprise com com- prise the obligations of our lesser losser governmental units whether states special districts counties or cities Their distinguishing features including Including Including ing the exemption from taxation tion which makes them so popular toda today aro are those generally characteristic of ot a public debt These bonds have been Issued for a. a s I wide and ever over Increasing variety of or i purposes New York City borrowed borrow d I scores of or millions to build subways IDd I 1 and Dd Illinois has authorized authorIze a a. largo j bond Issue to carr carry out its ambitious highway Improvement pro program ram All Allover over Dyer the tho country communities havo have I used bonds to finance schools parks water works and similar projects parl in short the tho history of ot municipal bor hor- borrowing borrowing rowing rowing- Is tho the story of public progress ress In tho the past American municipal bonds have c not always hold the tho high position which Is theirs toda today During the forties of or the last century such I bonds fonds were were- Issued to finance railroads which have never been built and inho In ho he darkest days of ot American history tho tho reconstruction period of ot tho the ivil war war certain certain notorious carpetbag carpet bag ag b ag legislatures saddled their states with debts which benefited d only their I n corrupt purses Under such circumstances cir clr- ses It was not difficult to the taxpayers that these I need not be a few states even adopted new con constitutions specifically repudiating the old bonds To prevent a a. repetition of these scandals reputable lo dealers now spare no effort to assure themselves of oC the legality and honest honesty of ot the bond Issue before offering It to tho the Investing public Lawyers who specialize In that field examine e tho the thoa validity validity va va- of oC tho the bonds In tho the same sarno thorough thorough thorough thor thor- ough manner In which a title guar- guar i anteo company searches the tho title toa to toa toa a piece picco of real estate When these thes precautions have c been taken repudiation repudiation under the sha shadow ow of ot law Is practically IH Impossible and as a a. class clam proba probably probably- no obligation can bo be considered considered considered consid consid- ered safer 1 Today da day than the American municipal bond I These bonds are ordinarily a direct director director t tor or general obligation of tho the entire community supported by all Its ta taking tak ing ng power Occasionally they may bo be special assessment bonds which are payable out of ot the proceeds of ot taxes l levied upon the property directly benefited ben by a a. local Improvement Such bonds are sometimes covered by a general general gen gen- en eral obligation clause the tho the community community at largo large undertaking to pay them from other revenues in case caso the special cial levy should prove Insufficient Taxes of oC course are arc a a. first lien on all taxable property so that the tho municipal municipal municipal pal bondholder Is often ollen said to have havo havea a first mortgage on the entire city American laws permit neither an Individual in individual individual In- In nor a 30 community to neglect I Its debts and tho the experience of ot those communities which have aspired to L be beL I a law v unto themselves os In this respect has not been such Buch as to encourage further further further fur fur- ther attempts of or that kind There area aroa are aro a number of or cases on record in which I bondholders have havo successfully sued I municipal corporations through the i courts gaining a verdict which Included c ed principal Interest and the tho costs of the trial The Tho state itself cannot be bo sued without Its own consent consent but those states which havo have In the past tal taken en advantage of or this or any other excuse have havo naturally found Investors deaf to their subsequent appeals for money a money a serious thing thinS for tor a growing community which must borrow frequently fre ire With tho the precautions now taken to assure the validity of at each Issue any attempt at repudiation must be bo patently illegal al and so long as tho the American people retain that respect for tor law which Is tho the foundation of our whole government our municipal bonds must be considered l among th the safest investments In the world R Recently high tn taxes es' es have made tax exemption one of or the tho most Important features c of ot municipal bonds Most Mos issues of ot this t typo Po are arc exempt from taxation In tho state where issued and andall andall all are arc exempt from the levy which bears heaviest fe t on security holders holders- tho federal income tax Thou Though h economists have criticized this ex exemption er- er emption In the opinion of ot many promInent promInent prominent prom prom- lawyers any attempt to make th the tho Income tax cover municipal bonds bond would be unconstitutional The consequence ha has hang been beon to make mako municipal issues a J. J particularly desirable desir- desir ablo able Investment for men whose whoso large largo Income makes mal them liable to tho the heavier taxes To an Investor whose whoso able ta Income Is 4 per cen cent t bonds about th tine 0 1 un net pct return as taxable issues yielding 54 per cent to an Investor with an Income over oyer they net more than 6 GJ per cent taxable bonds and anda a 3 bondholder whose Income is In excess ox- ox cess of ot finds them equivalent to a a. taxable security yielding over o 1 11 per cent Un Under r these circumstances the wealthy investor turns naturally to the tho tax free bonds and a railway or Industrial security must pay handsomely handsomely handsomely hand hand- Indeed to draw his attention However others than the wealthy do well to consider tho the attractions of oC municipal Issues They have always been beon a a. standard investment for tor savings savings savings sav sav- ings banks to whom tax exemption I 1 is of little Importance Now the tho world worldwide worldwide wide wido shortage of oC capital which ha has a resulted from Crom the war has haG affected public as well as private borrowers and and while municipalities still pay less for the use of at mone money than do business corporations the return to be obtained from tram Investment In municipal bond bondIs bong Is higher her than in many years A As the safety of such Issues remains unimpaired unimpaired paired conservative Investors everywhere everywhere everywhere every every- where aro are taking an Increasing Increasing- Int interest interest inter inter- rest r- r est In municipal bonds |
