the present cannot pay for all the permanent improvements that ought to be constructed, and will leave them unbuilt rather than shoulder the burden. The correct principle in improvements of this sort is that the indebtedness incurred shall be funded, but in every case provision, by sinking fund or otherwise, should be made for the payment of the loan during the period of the usefulness of the work.

The Debt Limit.-The risk of excessive borrowing is more insidious and therefore much greater than that of excessive taxation. In Europe this danger is guarded against by state or national supervision and control of municipal loans. In this country, to attain this end, the state by constitutional provision or statute imposes a debt limit upon cities. In most cities in the United States there is a general limit, varying all the way from one and one-half to ten per cent. of the assessed valuation of real estate within the city; but, without regard to this limit, indebtedness may be contracted for many purposes, and there are easy methods of increasing the percentage. Probably there are few cities where the total indebtedness may not exceed five per cent. of the assessed valuation, and many where it may materially exceed ten per cent.2

In the effort to prevent extravagance and dishonesty, care must be taken that the debt limit, like the tax limit, is not fixed at too low a rate. In municipal as well as in private business an extensive plant and equipment are becoming more and more essential to economy and efficiency; and municipalities, like other corporations, can obtain the money for such uses only by borrowing for the purpose. The power to borrow adequately, like the power to impose adequate taxes, although undoubtedly subject to abuse, is essential to the conduct of the affairs of the modern city. The democratic remedy for the possible abuse of needful powers is not to abolish or unduly curtail them, but by active participation in government to secure their proper use. Faulty as it is, democracy is the best form of government we know, and local self government, with the necessary powers to make it effective, is essential to it.

For a fuller statement on this point see "City Planning," edited by John Nolen, p. 391.

Not all loans are obtained for the purpose of making durable improvements. In every city it is customary to borrow for the purpose of meeting certain current expenses that will later be taken care of in other ways. If this is not done, delays in construction are likely to occur, most expensive to the city and to land owners. This is especially true with relation to the laying out of streets, with their sewers and other accessories needed for building development. Without them houses cannot be erected on abutting land, the owners must carry it at a heavy expense instead of selling it at a profit, and the city must lose several years' taxes on improvements not yet built. The entire cost to the city of this construction may and should be a charge on the property improved, to be speedily repaid by the land owner. Certainly such a lien is a safe and ample security for such a loan. Not only should the city be allowed to borrow for such purposes, but the loans should be outside the debt limit.

Self-Supporting Enterprises.—Self-supporting public enterprises should also be outside the debt limit. As soon as, for instance, a municipal street railway or gas plant is on such a basis as permanently to be able to pay interest on the cost and a reasonable sum toward amortization and renewals, the money thus employed should no longer be regarded as a debt but recognized as an investment, and the amount so employed deducted in calculating the indebtedness under the debt limit.3

'Such loans are as a rule outside the debt limit in Canada. See for instance R. S. Manitoba 1913, Municipal Institutions (ch. 133), part VIII, Local Improvements, sec. 561; Saskatchewan Stat., 1915, ch. 16; 1916, ch. 19. Indebtedness to acquire self-sustaining enterprises is also, to some extent, outside the debt limit of the city and county of Philadelphia (Penn. Const., art. IX, sec. 8) and of Virginia cities (Va. Const., art. VIII, sec. 127).

The city that perhaps has found such a law most useful is New York. The provision is in the constitution of the State and is as follows:

Art. VIII, sec. 10: . . . "Any debt hereafter incurred by the City of New York for a public improvement owned or to be owned by the city, which yields to the city current net revenue, after making any necessary allowance for repairs and maintenance for which the city is liable, in excess of the interest on said debt and of the annual installments necessary for its amortization, may be excluded in ascertaining the power of said city to become otherwise indebted, provided that a sinking fund for its amortization shall have been established and maintained and that the indebtedness shall not be so excluded during any period of time when the revenue aforesaid shall not be sufficient to equal the said interest and amortization installments, and except further that any indebtedness here

4

Avoiding the Debt Limit.-After the city has reached its debt limit, it may still make improvements or acquire property if only it does not enter into any obligation to pay for them. This it may accomplish by constituting these payments a charge on a special fund to be created or on special property to be acquired. Thus the city may construct a public work to be paid for solely by local assessments on private property benefited, the assessments usually being a lien on this property; or make extensions of a public utility, the cost to be paid solely out of net income; 5 or, if it can make whatever initial payment may be required out of current income, it may accept property subject to a mortgage which it does not assume, or acquire property to be paid for, if at all, in installments. In the two latter cases, the city will lose the property if the mortgage or the installments are not paid when due, but in no case is it under any obligation to meet them. In all these cases the city, by pledging its credit, could accomplish its purpose more cheaply; but if the improvement is needed at once it may be

7

tofore incurred by the City of New York for any rapid transit or dock investment may be so excluded proportionately to the extent to which the current net revenue received by said city therefrom shall meet the interest and amortization installments thereof, provided that any increase in the debt incurring power of the City of New York which shall result from the exclusion of debts heretofore incurred shall be available only for the acquisition or construction of properties to be used for rapid transit or dock purposes. The legislature shall prescribe the method by which and the terms and conditions under which the amount of any debt to be so excluded shall be determined, and no such debt shall be excluded except in accordance with the determination so prescribed. The legislature may in its discretion confer appropriate jurisdiction on the appellate division of the Supreme Court in the first judicial department for the purpose of determining the amount of any debt to be so excluded. No indebtedness of a city valid at the time of its inception shall hereafter become invalid by reason of the operation of any of the provisions of this Section. . .

The legislature did pass an act (Laws, 1910, ch. 276) so prescribing methods, and giving the Court referred to, jurisdiction. For a case construing this paragraph and law see In re Debt Limit, 123 N. Y. Supp. 860. Kelly v. Minnesota, 63 Minn. 125 (1895).

Winston v. Spokane, 12_Wash. 524 (1895); Lexington v. Lafayette Bank, 165 Mo. 671 (1901); Evans v. Holman, 244 Ill. 596 (1910).

Burnham v. Wilwaukee, 98 Wis. 128 (1897); contra, Browne v. Boston, 179 Mass. 321 (1901); Evans v. Holman, 244 Ills. 596 (1910).

7 Cases cited above; contra, Reynolds v. Waterville, 92 Maine, 292 (1898). See generally on this subject, Pond, Public Utilities, ch. VI (Bobbs-Merrill Co., Indianapolis, 1913).

worth the added expenditure necessary to obtain it without delay.

Special Assessments.-The planning and construction of streets and other public features are undoubtedly of advantage to the entire city. In many jurisdictions the cost of such features is met by a tax on the city as a whole. But the land in the neighborhood of an improvement, in addition to the general gain, often receives a special benefit by reason of this construction. This result of public works wisely planned and intelligently carried out is perhaps most evident in the case of land abutting on a newly built street. This land, in addition to the privileges in the street which it shares with all city land, receives special benefits from it, such as the right to light, air, access and view, which greatly and immediately raise its market value. The law and custom of all civilized countries respects these privileges; our law recognizes them as property rights in the street appurtenant to and running with the abutting land of which the owner cannot be deprived without compensation."

It is becoming more and more the rule, the world over, to make a special assessment against this land to meet the cost of the street. The justice and expediency of this course is evident. General taxation is imposed upon all because it is for the benefit of all. To the extent that a new street or other improvement is of special advantage to neighboring property owners, it is unfair to assess its cost upon the property owners of the city as a whole; and it is only right and just that to this extent the neighboring land owners should pay for the gain they receive. Any other course would enrich them at the general expense. Care, however, should be taken not to levy a local tax in excess

8 Also called local or benefit assessments. Such an assessment has been defined as "a compulsory contribution paid once for all to defray the cost of a special improvement to property undertaken in the public interest and repaid to the government in proportion to the special benefits accruing to the property named." (Quarterly Journal of Economics, April, 1893). There are many other sorts of assessment, such as the imposition on the owner of realty of the cost of cleaning the sidewalk of ice and snow, or of repairing the pavement in front of his land, or the levying on him of the price of water supplied, etc., etc. It is not, however, any of these, but only special or benefit assessments that are here considered.

For a fuller statement of the law on this subject see p. 173.

of the local gain. The improvement of a residential street for through travel might often prove to be a detriment to the

abutter.

The history of benefit assessment is a long one. In Europe the practice goes back at least to the feudal period, but it is only in comparatively recent times that it has begun to come into common use in European countries. Thus in England local statutes authorizing its use began to be passed about 1900 and now this procedure is authorized as a part of the general "Housing, Town Planning, etc., Act" passed in 1909. In France local assessment to provide payment for various public works was authorized as a part of a general statute passed in 1807, but the procedure was so cumbrous that this method of financing improvements has not been employed in France until very recently.10 In Germany for many years there have been provisions for local assessments in the laws of the different states. In this country the practice, copied from the custom and law of London, was introduced in early colonial times, but the period of its active use did not begin until about 1813; and it is now the prevailing system here and in Canada.

Limiting the Amount of Local Assessments.-Local assessment is based upon the principle that the land owner should repay the special benefit he derives from a public work.11 In some cities in this country only a certain proportion of the cost of a new street, or its cost only to the extent of a certain proportion of the special benefit it brings to abutters, is collected from them. This latter practice is contrary to the principle of local assessment. It is unjust that the abutter should pay more than the amount of his peculiar gain, but he should certainly pay to the extent of that gain or the other tax payers

10 See the report accompanying the bill to amend the expropriation law of May 3, 1841, Chamber of Deputies, 10th Legislature, extraordinary session of 1911, No. 1369.

"In some states it is held that the question whether such an assessment is in any particular case in excess of the special benefit, is for the courts; in others that the decision of the administrative authorities on that point cannot as a rule be so reviewed. See for a fuller discussion of this point, Page and Jones, Taxation by Assessment (1909), sec. 666 and ff.