such radical steps in financing have been brought about, we must rely on the best procedure that can be worked out for assessing and collecting in the accustomed way-namely, by a mill tax on property valuations. And the only possible way to administer the schools successfully under this plan is to pay current expenses out of current tax funds, and pay for buildings and other improvements out of a bond fund. Probably every community has passed through the experience of paying for buildings out of current revenues. Such policy is unquestionably less costly in the end than the piling up of bonded debts, but unfortunately this method is no longer practicable owing to the rapid growth of cities and the enlarged expansion of educational service demanded. As curriculums enlarged they became more expensive, and there was left less and less of a margin in the current revenue with which to erect buildings. In the Cleveland survey of 1915 the recommendation was made that improvements be paid out of current taxes instead of bond issues, but that city has to date not found it possible to finance the schools in accordance with such a policy. Like testimony can be had from any large and growing city. In practice it will be found that any attempt to build with current tax funds will ultimately create a condition where the margin for maintenance rate will not yield enough for maintenance, nor will the margin for a tax rate to provide interest and sinking funds be sufficient in yield for that purpose. When the constitutional limit of the tax rate has been reached, the schools will still continue to grow, and then the matter of financing presents an impossible situation. "My purpose here is to caution against the policy of trying to pay for new construction with maintenance money. It is only by a far look ahead that we can see the fallacy of this plan of financing. The best way to protect the maintenance fund and assure your city of the necessary larger sum needed as the city grows and expenses for ordinary purposes increase is to go on the policy of bonds for improvements. By this route the maximum limit of the tax rate will be approached far more slowly. To illustrate with figures: for each $100,000 of improvements, by issuing a forty-year 5 per cent bond we take from the people $7,500 in taxes annually, which is one-thirteenth as much as we take by trying to make the current roll yield the entire $100,000 in one year. In other words, it is easier on the people to take through taxation $7,500 annually than to take $100,000-thirteen times easier. "The building policy should, therefore, be to raise funds by bonding, notwithstanding that theoretically it can be demonstrated that pay as you go is the less costly plan. So long as cities double in population in ten years, as most progressive cities do, we cannot within present tax rate limits cope with the increasing demand for more buildings."" The demand for school bonds has arisen out of the need of communities to provide educational opportunity on a scale more extensive than could be financed from annual taxes or other regular revenues. Although the issuing of bonds for school purposes is a modern development, the following quotation shows the historical justification of bonding as a means of raising money for community or governmental projects. "As early as the twelfth century, the Republic of Venice obtained forced loans from its people.2 The State paid interest on these loans, but deferred payment of the principal to a time when the situation of affairs should permit it.' Later Venice obtained from its citizens loans secured by the revenue from salt and by the income of the treasury for a certain number of years. Florence borrowed of its bankers and pledged as security taxes and other revenues. "Government borrowing, by the issue of bonds or other evidences of debt, assumed a more or less regular form in France in the time of Francis I (1515-47), in England with the Revolution of 1688 and the Wars of William III, and in what is now the United States during the Revolutionary War. "In the early part of the nineteenth century, we find in France small amounts of local loans or debts of the 1Paul H. Scholz. Business Manager of the Board of Education, San Antonio, Texas. Page 53. Method of Financing for Current Expenses, National Association of Public School Business Officials. Proceedings of the Eleventh Annual Meeting, Atlantic City, N. J. May 15-19, 1922. 1914. 'Raymond, William L. American and Foreign Investment Bonds. Houghton Mifflin Co., communes and in the United States borrowing on a considerable scale by our states and to a less extent by our cities. "In the United States, the bond business before and during the Civil War was concerned principally with United States government, state, and to a less extent, municipal bonds. After that period, bankers became interested in financing the building of many of our railroads, and during the past thirty years in furnishing money for the building and development of gas, street-railway, electric-light, and telephone properties." Bonding For School Purposes Legalized. In recognition of the need for the privilege of issuing bonds, all the states have enacted legislation which authorizes local communities to borrow money and to issue bonds for school purposes. Although the privilege of floating bonds has been extended to local communities, certain restrictions have been attached to the purposes for which the money thus raised may be expended. As shown by Table I, all states, save two, have recognized the fact that bonds should be issued for school purposes only when large sums of money are needed. The purposes for which money raised by bonding may be spent, that are mentioned most frequently, are the purchase or improvement of buildings and equipments, and the refunding of outstanding indebtedness. In an article by the author entitled, "The Retirement of School Bond Issues," which appeared in the January, 1923, issue of the American School Board Journal, it was shown that provision should be made for the payment of funded securities so that it would never be necessary to refund outstanding bonds. Consequently it would be wise to remove the provision concerning the refunding of outstanding securities as well as all other purposes which pertain to the maintenance costs of a school system. In light of the facts and opinions just presented, it seems certain that for some time to come school building LEGAL LIMITATIONS CONCERNING THE PURPOSES FOR WHICH MONEY RAISED BY SCHOOL BONDS CAN BE SPENT3 Virginia. Washington.. X X X X New Hampshire. X X X New Jersey. X X X X X X North Dakota... X X X X X X X X X H: : : : : .. X X X X X Florida. : M: H: : HH: : : HH: M: HH: HH: : : HMH: M: M: HMM: : HH: : H: : : Schoolhouses West Virginia. Wisconsin.... Wyoming. Basic Data taken from Mac Dowell, Theodore L., State vs. Local Control of Elementary Education Bulletin No. 22, 1915, United States Bureau of Education, corrected to 1921, from State Laws and Hood's Digest of Educational Laws. X programs will be financed in the majority of communities by issuing bonds. Since such is the case, it behooves boards of education and superintendents alike to acquaint themselves with, and adopt the best practices and procedures in the issuance and retirements of bonds for school purposes. In the present volume, an attempt has been made to provide a handbook for officials who have charge of the floating of funded securities for educational purposes. Summary. 1. All school expenditures may be classified under (a) current expenses, (b) capital outlay, (c) debt service. 2. School building programs may be financed by (a) The pay as you go plan 1. Annual tax. 2. Sinking fund. (b) The bonding plan 1. Straight. 2. Sinking fund. 3. Serial. 3. Current expenses should be met from current revenues. 4. All states permit bonding for school purposes. 5. Forty-six states have passed statutory provisions concerning the purposes for which school money raised by bonding can be spent. ! |