Illinois Staats-Zeitung -- January 11, 1875The Administration of the City's Finances (Editorial)
In an editorial appearing in yesterday's issue of the Tribune, under the heading, "An Ugly Chapter in the City's Finances," Mr. Joseph Medill rebukes the city council of Chicago because the City Fathers, when they established the tax rate, failed to take into consideration the fact that between ten and fifteen per cent of the taxes that are levied are never collected, but set the rate according to the amount of money that has been appropriated; and Mr. Medill states that this procedure is the cause of the constant increase in the city's floating debt.
Mr. Medill says: "It has long been the custom of the municipal government of Chicago to spend its money before its taxes are collected, and then to collect only a part of them. The tax levy is made on June 30. According to a pleasant self-deception of officials, the full amount of taxes should be in the treasury by July 1, and the various divisions of the municipal administration immediately 2set to work to spend it, and they do so with an energy and a determination that are in marked contrast with the manner in which they collect it--nine months or a year afterwards. When six months have been spent making disbursements, and January has come, a feeble effort is made to collect borrowed money that has already been spent. In the current month the city treasurer will receive, in small amounts of a few hundred or thousand dollars per day, a small part of the taxes which were levied last August. This process of collection will drag on until the end of the fiscal year, in April. Then preparations will be made to sell property on which the owners have failed to pay taxes. Some time during the summer the council will pass a resolution to ask the probate court for a judgment against the delinquents. After that, some more people--those most easily frightened--pay. After this, say in July, a year after the appropriation has been made, the court grants a judgment against all except tax fighters who escape through loopholes, technicalities, informalities, or some legal quibble, and if they fail in that, they appeal to the circuit court, to the Supreme Court, and eventaully manage to avoid payment--but not lawyer's fees.
"As to the others against whom judgment has been secured, about one half to 3two thirds pay their taxes. The remainder let their property be sold for the delinquent assessments. The per cent of penalty not being high enough to tempt tax title buyers, the city is obliged to purchase the property and hold it until such time as the delinquents see fit to redeem it--one, two, three, or more years thereafter. The tax sales are held in August or September, and thus, fifteen months after the city council made the appropriations and began to spend the money, the taxes, or a part of them, are paid into the treasury.
"What is the city doing for money during this interval? Why, borrowing from special funds, from banks, and issuing certificates of indebtedness payable on the January I following.
"About four fifths of the tax levy is finally paid into the treasury between February and October, and is used to redeem the certificates and help the city government cripple and kite along as best it can. Formerly, a comptroller who could be employed for $4,000 a year could manage to borrow enough money to shin along. Now it requires a higher grade of borrowing genius, and requires an 4$8,000 man to do the necessary shinning and borrowing.
"Before long, the case will become so complicated and difficult as to require a financier who will cost $18,000, or $16,000, a year.
"From ten to fifteen per cent of the taxes that are levied each year are never collected, but are lost to the city through the successful resistance of the real estate tax fighters and personal tax absconders. However, the money representing the delinquency has already been spent to the last cent. The paper representing it, therefore, swells the floating debt.
"It was once the custom to fund this floating debt, from time to time, in bonds. The Constitution of 1870 fixed a limit, however, to the bonded indebtedness of the city, and that limit has been reached. We can no longer fund our certificates. So this resource fails.
"Heretofore there was another source, which is also about to fail. After the 5Constitution of 1870 was adopted, and before it became effective, the city issued $33,739,000 of bonds for the following purposes:
River improvement $1,029,000 Sewerage and tunnel 475,000 Water supply 1,500,000 School and other buildings 735,000
"The sale of these bonds furnished a fund which served as a pool from which the city borrowed money to meet its needs between July and the time the annual levy was realized upon. Thus it got temporary loans without paying interest, and replaced them with the proceeds of the yearly tax collected in August and September of the following year. This pool has steadily grown smaller, as the improvements for which the bonds were issued were made. The river improvement, sewerage and tunnel, and school funds have been wiped out. Only a small fraction of the water fund is on hand. The public buildings fund, received from the sale of the canal lien to the State, which also served as a pool, was pretty nearly exhausted by the defalcation of Mr. Gage. From Comptroller Hayes' statement concerning the amounts nominally credited to the special funds, it is evident 6that the only money which now can be borrowed by the city without interest for any length of time, is as follows:
Water fund $93,396.65 Bridewell fund 21,851.74
"This is only a drop in the bucket in comparison to the five or six million dollars that the city spends annually. Iy will not be long before this scanty pool will be entirely dried up. Then the city will have to borrow (and pay interest) as it goes, or pay as it goes. It cannot follow the first procedure very long. Our borrowing capacity decreases with every addition to our floating debt. If we persist in issuing certificates of indebtedness to meet our current expenses, we shall swell this debt, not only in the amount of the difference the taxes levied and the taxes collected, but also by the amount of interest we are obliged to pay on these certificates. Our inability to carry our debt, then, merely becomes a question of time. Municipal bankruptcy will surely result. We are rapidly approaching the financial stage which New York has already passed. The message which Mayor Wickham sent to the common council 7of that city contains many suggestions for us. He says: 'At present I am unable to inform you what the present liabilities of the city really are. The comptroller sets the total debt at $110,187,980; but there is a floating debt of from $10,000,000 to $20,000,000 besides. The time has come when the actual financial condition of the city should be ascertained and published.'
"This time has also come here. The time has come, moreover, when we should adopt a sensible system of taxation and collect our money at least as fast as we spend it. We must stop this child's play of gauging our appropriations according to the full face value. When the State of Illinois needs $3,000,000 net, and experience has shown that the cost of collection is ten per cent, the auditor makes a levy of $3,300,000. If this levy yields only $2,900,000 he makes up the deficit the next year by levying $3,500,000 or $3,600,000, or whatever amount is sure to yield the revenue that is required that year, pay the cost of collection, and cancel the deficit. Our city council proceeds according to a radically different plan.8
If the city needs $5,500,000, our sagacious aldermen authorize the various departments to spend that full amount, and then levy a tax of $5,500,000. Of this sum, the city receives, within the year, perhaps $5,000,000 net, or less, and has to use a part of this sum to pay the interest on the money borrowed for six to nine or twelve months or longer, to anticipate the collection of taxes. Mayor Calvin's last message, submitted to the council on December 7, shows that outstanding certificates of indebtedness to be paid between that date and the June 1 next, then amounted to $3,186,015. On nearly all, if not all, of this sum the city is paying from seven to ten per cent interest."
We fully agree with Mr. Medill--excepting with reference to a few technical inaccuracies and some inconsequential, but intended, misstatements, as for instance, that the city pays from seven to ten per cent interest on the money which it borrows; for, since Mr. Hayes entered office, the rate of interest has been less than seven per cent, rather than more.
The Illinois Staats-Zeitung also has often discussed the evils which Mr. Medill 9touches upon. But has not the time come when we should ask: "How does it happen that wise Mr. Madill did not think of all these things before? Why did he not avail himself of the opportunity to correct the faults of our financial management when he was mayor and had full authority to do so, and when the State Legislature heeded his every request and passed any law that he recommended? Had he spoken the right word at the right time, our city finances would be in much better shape. Instead, he enlisted the aid of his adviser, Tully, to increase the city's financial difficulties, by sponsoring the notorious Bill #300. It was just last Sunday that he admitted that this bill was a total failure, that there is no way to correct it, and that it would be best to repeal it. Apparently Mr. Medill has gradually learned that, if it were possible, his entire administration should be undone--for the benefit of our city. Since that cannot be done, we, give him credit for at least admitting that the city did not profit by his administration.
I F 6, I H
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