School bonding practices in selected Wyoming counties, 1930–1949

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This thesis , having been approved by the special Faculty Committee , is accepted by the Graduate School of the University of Wyoming, in partial fulfillment of the requirements for the degree of

Mast_er__o_f_ Arts.______ _________ Dean of the Graduate School.

D ate

May 29, 19$0____

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SCHOOL BONDING PRACTICES IN SELECTED WYOMING COUNTIES 1930 - 1949 by Prank Anthony B la s i

A T h e sis Subm itted to th e Department o f E d u catio n al A d m in istratio n and th e G raduate School o f th e U n iv ersity o f Wyoming in P a r t i a l F u lfillm e n t o f Requirements f o r th e Degree o f M aster o f A rts

LIBRARY OF THE

UNiVERSITY OF WYOMING LA R A M I E

U n iv e rsity o f Wyoming Laramie, Wyoming May, 1950

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U M I N um ber: E P 25 24 1

IN F O R M A T IO N T O U S E R S

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®

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ACKNOWLSD GHENT

The w r ite r w ishes to acknowledge h is a p p re c ia tio n to th o se who so k in d ly a s s is te d him in th e p re p a ra tio n o f t h i s paper.

H is s in c e re thanks

a r e expressed f o r th e very w illin g cooperation shown by th e county o f f i c e r s and t h e i r s t a f f in th e s e le c te d c o u n tie s .

The w rite r i s deeply g r a te f u l

V '‘

t o D r. Maynard Bemis f o r h i s many h e lp f u l su ggestions and a b le guidance.

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I

TABLE OF CONTENTS C hapter I.

Page

INTRODUCTION..................................................................................................

1

S tatem ent o f P ro b le m ............................................................................

1

P r o c e d u r e ..............................................

2

L im ita tio n s o f Study . . . . . Plan o f Study II.

.......................................................

.....................................

3

REVIEW OF LITERATURE................................................................................. B o o k s ..................................................

5 5

D o cto rs' Theses

.....................................................................................

11

M asters' Theses

............................................... . . . . . . . . .

15

P e rio d ic a ls III.

3

...................................................................

17

FINANCING SCHOOL PLA NTS......................................................................... S tr a ig h t Bonds

..............................................................

20 21

Sinking-Fund B o n d s .....................

23

S e r ia l B o n d s ............................................................................................

24.

Pay-As-You-Go

29

..............................................

W a r r a n ts .....................................................................................................

32

Legal L im ita tio n s in Wyoming . . . . . . . .

33

. .

IV. BONDING IN SELECTED COUNTIES.................................................................

40

Albany County School Bonds ................................................................

40

Big Horn County School Bonds ...................................... . . . . .

46

Carbon County School Bonds ........................................................... .

53

iii

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TABLE OF CONTENTS, CONTINUED

C hapter

Page L incoln County School B o n d s .....................................

58

S u b le tte County School Bonds . . . .

62

..........................................

Sweetwater County School B o n d s .................................

66

Teton County School Bonds

71

........................... . . . . . . . . .

U inta County School Bonds

.............................

75

G eneral Comparison o f P rin c ip a l and I n te r e s t on Bonds i n S e lec ted C ounties V.

SUMMARY AND CONCLUSIONS

.............................................. ........................................................................

C o n c l u s i o n s ......................................................

79 81 83

SELECTED REFERENCES.................................................................................................

85

APPENDIX......................................................................................................................

89

iv

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L IST OF TABLES

T able I.

Plage R etirem ent Schedule f o r S e r ia l Bond, Equal Annual P r in c i­ p a l Payments (#100,000 is s u e fo r te n y e a rs a t 1 p er cent i n t e r e s t ) .................................................................................................

II.

27

R etirem ent Schedule f o r S e r ia l Bond, Equal T o tal Annual Payments (#100,000 is s u e fo r te n y e a rs a t 1 per cent in te re s t)

III.

.........................

28

R etirem ent Schedule f o r S e r ia l Bonds, Unequal Annual P r in c ip a l Payments ($100,000 is s u e fo r ten y e a rs a t 1 p er cen t i n t e r e s t )

IV. V.

. . . . . . . . . . .................. ... . . . . . .

School Bonds Issu ed i n Albany County,

1930-49 . . . . . . .

V II.

IX.

45

School Bonds Issued in Big Horn County, 1930-49 . . . . . .

School

...............................................

Bonds Issu ed in Carbon County,1930-49 . . . . . . .

X I.

52 56

R e la tio n s h ip o f Bonds O utstanding to Legal L im itatio n s in Carbon County, Jan uary 1 , 1950

X.

50

R e la tio n s h ip o f Bonds O utstanding to Legal L im ita tio n in Big Horn County, January 1 , 1950

V III.

44

R e la tio n s h ip o f Bonds O utstanding to Legal L im ita tio n in Albany County, January 1 , 1950

VI.

28

School Bonds Issu ed in L incoln County, 1930-49

57 . . . . . .

60

R e la tio n s h ip o f Bonds O utstanding to Legal L im ita tio n in L in co ln County, January 1 , 1950

... ....

v

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61

LIST OF TABLES, CONTINUED

T ab le X II. X I II .

Page School Bonds Issu ed in S u b le tte County, 1930-49 ..................... R e la tio n sh ip o f Bonds O utstanding to Legal L im ita tio n in S u b le tte County, January 1 , 1950

XXV. XV.

65

School Bonds Issu ed in Sweetwater County, 1930-49 . . . . .

XVII.

School Bonds in Teton County, 1930-49 . . . . . . . . . . .

XIX.

School Bonds in U inta County, 1930-49 . . . . . . . . . . .

73

74 77

R e la tio n s h ip o f Bonds O utstanding to Legal L im itatio n in U inta County, January 1 , 1950 ..............................................

XX.

70

R e la tio n s h ip o f Bonds O utstanding to Legal L im itatio n in Teton County, January 1 , 1950 .......................................................

X V III.

69

R e la tio n s h ip o f Bonds O utstanding to Legal L im ita tio n in Sweetwater County, January 1 , 1950.... .................................. .... .

XVI.

64

78

Comparison o f O rig in a l P r in c ip a l, Refunding P r in c ip a l, I n t e r e s t on O rig in a l P r in c ip a l, and I n te r e s t on Refunding P r in c ip a l, 1930-1949

XXI.

......................................

90

T o ta l P r in c ip a l and I n te r e s t on a l l Iss u e s Other Than Re­ funding, 1930-1949

XXII.

. . . . . . . .

............................................................................

92

Comparison o f T o ta l P r in c ip a l and I n te r e s t in Each County, 1930-1949 ..................................................

vi

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94

CHAPTER I

INTRODUCTION In t h i s e ra o f r a p id ly expanding schoolhouse c o n s tru c tio n , one o f th e major problems which c o n fro n ts su p e rin te n d e n ts and school boards i s th e fin a n c in g o f th e new school p la n ts .

The problem in v o lv es both p u b lic

support f o r in c re a s in g ex p en d itu res and th e proper management o f p u b lic d e b t.

I t would be d i f f i c u l t to fin d a period in which th e growth o f

government ex p en d itu res and th e accum ulation o f p u b lic d eb t have not been a com plaint o f ta x p a y e rs.

This co n sta n t o p p o sitio n to th e expansion o f

p u b lic d eb t i s o f v alu e i f i t can succeed, not n e c e s s a r ily in c u rta ilm e n t b u t in more th o u g h tfu l c o n s id e ra tio n b e fo re th e se ex p en d itu res a r e in ­ c u rre d . The p re se n t in c re a se in school in d eb ted n ess can be c o n trib u te d to many u n c o n tro lla b le f a c to r s , such a s th e in c re a se in school a tte n d a n c e , len g th en in g o f th e school t e r n , i n f l a t i o n , and th e expansion o f school s e rv ic e s .

W ithout adequate p ro v isio n f o r f in a n c ia l management, th e s e

added s e rv ic e s w ill c o n trib u te h e a v ily to r i s i n g bonded in d eb ted n ess and may je o p a rd iz e th e e n tir e school program. Statem ent o f Problem The problem o f t h i s study was to analyze th e bonding p r a c tic e s in s e le c te d c o u n tie s o f Wyoming w ith re s p e c t to th e -type of bonds, r a t e o f i n t e r e s t , le g a l lim ita tio n s , and amount o f bonded indebtedness sin ce 1930

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2 The in v e s tig a tio n a ls o p ro v ides a follow -up study o f a Master* s t h e s i s , A Study o f Bonds Issu ed f o r E d u catio n al Pur-poses in a S e le c te d Group o f C ounties i n Wyoming, w ritte n by E rn est Bloom i n 1930.

More s p e c if ic a lly

th e study seeks to answer q u e s tio n s , such a s th e follow ing: 1.

What a r e th e d i f f e r e n t methods o f bonding used i n th e s e s e le c te d

co u n ties? 2.

Have th e d i f f e r e n t l o c a l i t i e s improved t h e i r bonding methods

sin c e 1930? 3.

How does th e i n i t i a l p r in c ip a l compare w ith i n t e r e s t paid fo r

u se o f th e money? 4.

Are th e d i s t r i c t s complying w ith le g a l lim ita tio n s provided ty

s t a t e s ta t u t e s and th e c o n s titu tio n ? T his study does n o t propose to review in d e t a i l a l l th e c r i t e r i a in ­ volved in sound bonding p r a c tic e b u t to examine th o se e s s e n tia l elem ents i n a sim ple way so t h a t school a d m in is tra to rs may use them in e v a lu a tin g t h e i r own bonding p r a c tic e s . Procedure In a study o f t h i s n a tu re only a s e le c te d group o f c o u n tie s can b e c a r e f u lly examined.

To g ain th e r e q u ire d in fo rm atio n concerning ty p e o f

bonds, bonded in d eb ted n ess, i n t e r e s t on bonds, and amount in d e f a u lt, i t was n ecessary to v i s i t th e o f f ic e s o f th e county t r e a s u r e r s i n th e se­ le c te d co u n tie s by tr a v e lin g about 1,500 m ile s.

The in fo rm atio n on th e

asse sse d v a lu a tio n o f ta x a b le p ro p erty was ob tain ed from th e o f f ic e s of th e s e v e ra l county a s s e s s o r s .

When e i t h e r o f th e above sources could n o t

f u rn is h th e m a te r ia l, an a tte m p t was made to secure th e in fo rm atio n from

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3 th e county su p erin ten d e n ts o f sc h o o ls.

To tr a c e th e development o f school

bonding i n th e U nited S ta te s a s a whole, th e w rite r ob tain ed previous s tu d ie s o f bonding p r a c tic e s through i n t e r - l i b r a r y lo a n s.

P resen t p r a c tic e s

were determ ined by exam ination o f c u rre n t p e r io d ic a ls , vdaile recognized t e x t s in school fin a n c e were stu d ie d to provide background in fo rm a tio n . Most o f th e d a ta on bonding p r a c tic e s in Wyoming co u n ties was secured thro u g h v i s i t s to th e county co u rth o u ses.

The o r ig in a l s e le c tio n of th e

c o u n tie s was made to provide a r e p re s e n ta tiv e sample of the v a rio u s ty p es o f in d u s tr ie s to be found in Wyoming, such a s a g r ic u ltu r e , ran ch in g , and m in era l re s o u rc e s . L im ita tio n s o f Study T his in v e s tig a tio n was lim ite d to th e c o u n ties used in th e previous study conducted by E rn e st Bloom, and included Albany, Big Horn, Carbon, L incoln, S u b le tte , Sweetwater, Teton and U in ta .

I t was hoped t h a t a f a i r

sampling o f th e bonded in d eb ted n ess o f th e sch o o ls in th e s t a t e m ight be o b tain ed by secu rin g d a ta on a l l o u tstan d in g bonds w ith in each county su r­ veyed. Another l i m ita tio n o f t h i s p a r tic u la r study was in tro d u ced by th e in ­ c o n s is te n t manner and form th e d i f f e r e n t county tr e a s u r e r s used to re c o rd p e r tin e n t in fo rm atio n about bonds i n th e bond r e g i s t e r .

Although th e

county tr e a s u r e r s were c o o p erativ e, very few could i n t e r p r e t c e r ta in is s u e s because th e re c o rd in g s were made b e fo re th ey had been e le c te d to o f f ic e . Plan o f Study T his stu d y i s re p o rte d in f iv e c h a p te rs. serv e a s an in tro d u c tio n .

The f i r s t ch a p te r w ill

The second ch ap ter i s devoted to previous

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A

s tu d ie s which p e r ta in to th e p re se n t problem o f school bonding.

The

t h i r d ch ap ter c o n sid e rs some o f th e p o s s ib le methods o f fin a n cin g sch o o lp la n t c o n s tru c tio n , to g e th e r w ith th e le g a l lim ita tio n s on bonding fo r th e S ta te o f loom ing.

The fo u rth ch a p te r i s an ex p lan atio n of th e s ta ­

t i s t i c a l d a ta o b tain ed from th e c o u n tie s s tu d ie d .

The l a s t c h ap ter i s

in ten d ed to summarize th e study and draw co n clu sio n s.

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CHAPTER I I

REVIEW OF LITERATURE This r e p o r t does n o t in te n d to review a l l of th e l i t e r a t u r e in th e f i e l d o f school bonds.

I t w ill be th e purpose o f t h i s c h a p te r to summa­

r i z e l i t e r a t u r e f o r th e l a s t two decades which w i l l b ear s p e c ia l anphasis to th e in v e s tig a tio n . in g d iv is io n s :

The l i t e r a t u r e w ill be considered Tinder th e fo llo w ­

books, D o cto rs1 th e s e s , M asters’ th e s e s , and p e r io d ic a ls . Books

B efore th e evidence compiled in t h i s study i s advanced, i t may be w ell to in tro d u c e evidence t h a t o th e r persons a r e a ls o seeking f a r sim i­ l a r answers to th e problem a t hand.

Some o f th e c u rre n t m a te ria l on th e

s u b je c t i s , th e r e fo r e , b r i e f l y summarized. Although th e r e have been numerous books in th e f i e l d of fin a n c e t h a t have devoted one o r two c h a p te rs to th e s u b je c t, th e p re se n t w r ite r has been a b le to f in d on ly one book devoted e n tir e ly to th e c o n s id e ra tio n o f school bonds.

John Fowlkes' School Bonds-*- h as given a more com plete con­

s id e r a tio n under one cover th an any o th e r book in v e s tig a te d by th e w r i te r . A bond i s d e fin ed by Fowlkes a s : . . . an in stru m en t issu e d by a co rp o ra te body in o rd e r to borrow money, in which th e is s u e r prom ises to pay w ith in a s ta te d tim e a

^John Fowlkes, School Bonds. C o ., 1924, p . 176.

Milwaukee, W isconsin:

Bruce Publ i s h i n g

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6 c e r ta in s tip u la te d sum w ith i n t e r e s t a t some fix e d r a t e , i n t e r e s t to be paid a n n u a lly , sem i-annually, o r q u a r te rly a s th e case may be. Bonds a re c l a s s i f i e d w ith r e s p e c t to th e is s u in g c o rp o ra tio n , w ith r e s p e c t t o s e c u rity f o r bonds, w ith re s p e c t to purpose or fu n c tio n o f is s u e , or w ith re s p e c t to th e manner in which th e p r in c ip a l and i n t e r e s t a r e p a id . A c o rp o ra tio n has been d esc rib e d a s a le g a l person p e r f e c tly d i s t i n c t from th e members which compose i t , having a s p e c ia l name and having such powers and such a lo n e , a s th e law p re s c rib e s . School bond is s u e s must be j u s t i f i e d by both th e board o f educatio n and th e su p erin ten d en t b e fo re a new school p la n t i s co n sid e red .

I t is

necessary to make a study o f school f a c i l i t i e s to determ ine th e c o n d itio n o f th e p re se n t p la n t, adequacy o f p re se n t p la n t, and i t s a c c e s s i b i l i t y . I t i s e s s e n tia l to prove th e need of a proposed bond is s u e , b u t i t i s even more e s s e n t i a l to determ ine i f a community can fin a n c e th e proposed is s u e w ithout a se rio u s h azard .

M easuring a community's a b i l i t y to f i ­

nance a b u ild in g program can b e s t be determ ined by a c o n s id e ra tio n o f tr u e p e r c a p ita w ealth , school ta x r a t e , t o t a l ta x fo r m unicipal purposes, c o s t o f ed u catio n to t o t a l m unicipal ex p en d itu res, t o t a l and p er c a p ita expendi­ tu r e f o r c a p ita l o u tla y fo r sch o o ls, bonded d e b t, th e r e l a t io n o f bonded d e b t to a sse sse d v a lu a tio n , c o n s titu tio n a l or s ta tu to r y d eb t l i m i t , and th e r e l a t i o n o f o u tsta n d in g d eb t to e x is tin g d eb t li m i t s .

These f a c t s

a r e o f l i t t l e v alue i f tak en only f o r a s in g le community; however, when compared w ith o th e r communities of th e same s iz e and l o c a l i t y , th e a b i l i t y o f a d i s t r i c t to f i nance a school b u ild in g program may be considered v a lid .

2 lb id . . p . 24.

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7 I f th e d a ta o f a survey j u s t i f i e s a b u ild in g program, th e n ex t im portant s te p b efo re a f i n a l v o te by th e people i s a good p u b lic r e la tio n s program e x p la in in g th e s itu a t i o n to a l l of th e people o f th e community. Much o f th e d i f f i c u l t y in th e re tire m e n t of school bonds i s caused by two th in g s :

( l ) an im prudent arrangem ent f o r payment of s e c u r i t i e s ,

and (2) th e issu an c e o f th e bonds f a r an ex cessiv e term of y e a r s . Three p la n s o f payment t h a t may be used i n r e t i r i n g school bonds a r e i l l u s t r a t e d by ( l ) th e s tr a i g h t bond, (2) th e sinking-fund bond, and (3) th e s e r i a l bond which Fowlkes, a s w ell a s most o th e r a u th o r itie s , recommends.

A s tr a i g h t bond i s f lo a te d fo r a c e r ta in p erio d o f y e a rs ,

a l l i n t e r e s t b eing p aid an n u ally or sem i-annually vfaile th e p r in c ip a l i s due a t th e end o f th e tim e f o r which th e bond was f lo a te d .

The sin k in g -

fund bond i s f lo a te d fo r a c e r ta in p erio d o f y e a rs w ith i n t e r e s t due annu­ a l l y o r sem i-annually and p r in c ip a l payable a t th e end of th e p e rio d .

As

im plied by th e name, a c e r ta in amount o f money i s placed i n a sin k in g fund which may o r may not be in v e ste d .

Many s ta t e s provide f o r c e r ta in con­

d it i o n s and req u irem en ts under which a sin k in g fin d must be r e g u la te d , such a s th e manner o f re tire m e n t o f o u tstan d in g bonds, investm ent i n s p e c i­ f ie d s e c u r i t i e s , a minimum i n t e r e s t r a t e f o r in v estm en ts, and c e r t i f i c a t i o n o f bonds by th e A tto rn ey General o f th e s t a t e .

A s e r i a l bond i s f lo a te d

f o r a c e r ta in p erio d o f tim e w ith a s p e c ifie d p a r t of th e p r in c ip a l, to ­ g e th e r w ith i n t e r e s t c o s ts , r e t i r e d a t r e g u la r in te r v a ls . More than h a l f o f th e s ta t e s have re g u la tio n s c o n tr o llin g th e s e llin g p r ic e o f school bonds.

The most im portant r e g u la tio n c ite d by th e s e s t a t e s

i s t h a t no bond may be sold f a r l e s s than p ar or l e s s than p ar w ith accrued in te re s t.

A nother l i m ita tio n concerns th e maximum r a t e o f i n t e r e s t which

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8 may be paid on school bonds issu e d i n th e s e p a ra te s ta t e s .

The aim o f

th e s e p ro v isio n s i s to a s su re th e community a f a i r p r ic e and to e lim in a te fra u d a s much a s p o s s ib le .

The two g en eral methods f o r th e d is p o s itio n

o f school bonds a r e th e p r iv a te s a le and th e p u b lic s a le .

The main d i f f e r ­

ence between th e p r iv a te and p u b lic s a le i s th e requirem ent o f p u b lic n o tic e and c a l l f o r sealed b id s which marks th e l a t t e r . Fowlkes' book w ill probably be found most v alu ab le to th e adm inis­ t r a t o r and s tu d e n ts in co u rses o f E d u catio n al A d m in istratio n who wish a co n sc ie n tio u s and r e a l i s t i c approach t o th e bonding problem.

The many

examples c ite d o f good and poor l e g i s l a t i o n in th e d if f e r e n t s ta t e s w ill be o f u se in su g g estin g changes in p re se n t l e g i s l a t i o n .

Although th e book

was w ritte n about a q u a rte r o f a cen tu ry ago, th e r e has been l i t t l e change in th e methods o f fin a n c in g school p la n ts . Mort and R eusser^ d isc u ssed school bonds in g e n e ra l, w ith s p e c ia l emphasis on fin a n c in g school b u ild in g c o n s tru c tio n , th e d if f e r e n t ty p es o f bonds, and th e advantages and d isad v an tag es o f each.

From th e v a rio u s

ways o f fin a n c in g c a p ita l o u tla y th e r e w ill be one t h a t b e s t f i t s th e needs o f any community.

The p o in t o f view o f th e a u th o rs t h a t th e r e i s

no one b e s t way to fin a n c e a school b u ild in g program i n a l l a re a s g iv e s a wholesome and f r e s h look to school bonding.

A c a r e fu l survey o f th e

community to o b ta in c e r ta in b a s ic f a c to r s i s e s s e n tia l f o r a wise choice o f fin a n c in g p la n .

The a u th o rs tended to fa v o r th e bonding p lan over

th e pay-as-you-go p lan o r th e b u ild in g re s e rv e p la n .

Like most o th e r

w r ite r s in th e f i e l d , th e y p re fe rre d th e s e r i a l boni over th e s tr a ig h t- te r m

^Paul Mort and W alter C. R eu sser, P u b lic School Finance. McGraw-Hill Book Company, I n c ., 1941, pp. 348-371.

New York:

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9 o r sin k in g -fu n d bond.

I t was suggested th a t s t r i c t a tte n tio n be given

th e v ario u s le g a l req u irem ents surrounding th e approval and s a le o f school bonds.

The w r ite rs recommended t h a t th e p r in c ip le o f prudence was th e

most im portant s in g le p r in c ip le o p e ra tin g in th e management o f lo c a l school in d eb ted n ess. Linn1s^ d isc u s s io n cen tered about th e problem o f reducing f u tu r e ex p en d itu res f o r d eb t s e rv ic e .

He tr e a te d m a te r ia l, such a s economies i n

d e b t s e rv ic e , l e g a l lim ita tio n s on school bonds, ty p es o f bonds, in f o r ­ m ation d e s ire d by bond b u y ers, and tre n d s in bond p r ic e s .

Linn suggested

t h a t bonding cannot be e lim in ated a s a method o f fin a n cin g b u ild in g p r o je c ts , fo r to do so would make i t im possible f o r sm a lle r school d i s t r i c t s to have needed improvements.

In determ ining whether th e pay-

as-you-go p lan o r bonding should be u sed , Linn s ta te d t h a t th e c o s t to th e tax p ay ers a s a group was determ ined la r g e ly by th e r e la tio n s h ip o f th e bond i n t e r e s t r a t e in th e in d iv id u a l community to th e worth o f th e money in th e same community.

The need o f le g a l lim ita tio n s and r e ­

s t r i c t i o n s governing th e issu an ce o f school bonds was shown to have long been needed in many s ta t e s to c o n tro l th e borrowing o f money. Linn concluded t h a t th e sinking-fund bond was su p erio r to th e s tr a ig h t- te r m bond, b u t g e n e ra lly considered to be i n f e r io r to th e s e r i a l bond.

He recommended t h a t th e term o f th e bond iss u e should n o t extend

beyond th e l i f e o f th e improvement b u t p o in ted o u t th a t s h o rte r p erio d s o f m a tu rity , u s u a lly from f i f t e e n to t h i r t y y e a rs , were more fa v o ra b le .

T lenry H. Linn, P r a c tic a l School Economics. New York: Bureau o f P u b lic a tio n s , T eachers C ollege, Columbia U n iv e rsity , 1934, pp. 350-379.

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10 Moehlman-’ lim ite d h is d isc u s s io n o f school bonding la r g e ly to th e argum ents which have been p resen ted f o r pay-as-you-go and lo n g -term borrow­ in g .

H is argum ents in fav o r o f th e pay-as-you-go were:

1 . In communities where a continuous program o f c a p ita l o u t­ la y i s n e c e ssa ry , i t i s im possible to d i s t r i b u t e th e burden over one or more g e n e ra tio n s. 2 . The la r g e amount o f borrowing necessary to fin a n c e such co n tin u in g programs may have se rio u s economic r e s u l t s . 3 . The p lan o f long-term borrow ing, whatever i t s form, i s expensive. 4 . Borrowing te n d s toward extravagance in s o fa r a s fin a n c in g by th e d e fe rre d p lan may become a q u e stio n of p o l i t i c a l expediency r a th e r th a n o f n e c e s s ity . 5 . In p u b lic b u s in e s s , c a p ita l improvements r e tu r n no revenue from which such d e b ts may be p a id , a s in th e case o f i n d u s t r i a l en­ t e r p r i s e , and t h a t while p r iv a te borrowing may be good b u sin e ss, t h i s i s n o t t r u e o f p u b lic borrowing.® The rea so n s given by Moehlman f o r fav o rin g a long-term borrowing were: 1 . I t d i s t r i b u t e s th e burden over s e v e ra l g e n eratio n s who w i l l enjoy th e school b u ild in g s . 2 . I t i s econom ically p r a c t i c a l . 3 . I t i s p o l i t i c a l l y e x p e d ie n t. 4 . I t i s a means o f in te r e s t in g th e community in th e sch o o l. 5 . I t i s j u s t i f i e d because th e a d d itio n o f schools w ill r e ­ s u l t in d e f i n i t e s o c ia l advantages to th e g en eral p u b lic . 6 . I t h a s been g e n e ra lly recognized a s an accep ted p r a c tic e f o r many y e a rs . 7 . R isin g p ro p e rty v alu es a r e s u f f i c ie n t to c a rry th e in ­ c re a sin g d e b t b urden.^

^A rthur B. Moehlman, P u b lic School F inance. & Company, 1927, pp. 219-220.

New York:

Rand McNally

6I b id . ? I b id . . p . 220.

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11 D o c to rs’ Theses The tremendous growth in schoolhouse b u ild in g has not i n i t i a t e d a s many s tu d ie s on bonding a s th e s itu a ti o n w arran ts.

The reaso n fo r t h i s

s p a r s ity o f s tu d ie s devoted e n t i r e ly to bonding i s probably accounted f o r by th e c o n sid e ra tio n given to th e s u b je c t in survey r e p o r ts conducted by most communities c o n sid e rin g a b u ild in g program.

U n til th e p u b lic a tio n

o f Fowlkes’ book i n 1924, l i t t l e c o n s id e ra tio n had been given to th e s u b je c t.

However, fo llo w in g Fowlkes' book and up u n t i l about 1936, s e v e ra l

th e s e s were w ritte n on s p e c ia l phases o f th e problem.

The th e s e s se­

le c te d f o r review i n t h i s study re p re s e n t th o se w ritte n b e fo re 1936, t o ­ g e th e r w ith a few w r itte n around 1940 which were a v a ila b le to th e w r ite r . The seven th e s e s s e le c te d a r e summarized in th e fo llo w in g pages.

The

s tu d ie s a r e review ed in c h ro n o lo g ic al o rd e r, according to th e y ear in which th ey were com piled. H alsey,

w ritin g on borrowing money f o r p u b lic sch o o ls, in v e s tig a te d

d e b t in th e S ta te o f F lo rid a .

The S ta te o f F lo rid a a t th e tim e of t h i s

in v e s tig a tio n was more h e a v ily i n d e b t p er c a p ita and p e r thousand d o ll a r s o f w ealth th an any o th e r s t a t e in th e Union.

He suggested t h a t one reaso n

f o r th e s t a t e ’ s heavy d e b t was th e d e n ia l by th e s ta t e o f c e r ta in revenue so u rces, such a s th e in h e rita n c e and th e income ta x .

The tim e w arrant

had a ls o c o n trib u te d to F l o r id a 's heavy d eb t because o f high r a t e o f i n t e r ­ e s t and u n lim ited term o f e x p ir a tio n .

Examination o f th e t o t a l t a x r e ­

c e ip ts f o r each month showed a d e la y in payment not provided f o r by th e

% en ry P . H alsey, Borrowing Money f o r th e P u b lic School. Unpublished D o c to r's T h e sis. New Yorks T eachers C ollege, Columbia U n iv e rsity , 1929, 127 pp.

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12 F lo rid a law .

T h is d e lay n e c e s s ita te d heavy and expensive c u rre n t borrow­

in g by school bonds.

He recommended th e a b o litio n of th e e le c tiv e method

o f choosing a s s e s s o rs and c o lle c to r s . H alsey emphasized th e im portance f o r e x p e rt b u sin ess management o f school fin a n c e s; c lo s e r su p erv isio n and re g u la tio n s by th e s t a t e d e p a rt­ ment o f ed u catio n ; th e appointm ent o f school o f f i c i a l s tr a in e d in b u sin e ss management and a b le to u se a modem school budget e f f e c tiv e ly ; e lim in a tio n o f b u ild in g c o s ts planned f o r d is p la y and n o t u se; r e v is io n o f s t a t e school law s; u se o f one bank and n o t two or th r e e j u s t to d iv id e th e s c h o o l s b u sin e ss; and th e p u b lic s a le o f bond is s u e s by m u n ic ip a litie s . Smith^ made a study to determ ine how th e le g a l lim ita tio n s on school in d eb ted n ess and ta x r a t e s in th e f o r ty - e ig h t s ta t e s a f fe c te d th e develop­ ment o f l o c a l school b u ild in g program s.

Many communities were found to

be handicapped in t h e i r b u ild in g program because s u f f ic ie n t funds could n o t be secured on account o f low le g a l lim ita tio n s on th e ag g reg ate i n ­ d e b te d n ess.

The m a jo rity o f d eb t lim ita tio n s were s ta te d i n term s o f th e

p ercen tag e o f a s se s se d v a lu a tio n and n o t tr u e v a lu a tio n o f p ro p e rty .

Wide

v a r ia tio n s in assessm ent r a t i o s e x is te d among th e c o u n tie s o f th e same s ta te .

Smith suggested t h a t s ta tu to r y p ro v isio n s were more d e s ir a b le th an

c o n s titu tio n a l p ro v is io n s because l im ita tio n s could be changed more e a s ily to meet an emergency o r s o c ia l and economic c o n d itio n s. Smith a ls o stu d ie d r e s t r i c t i o n s applying to th e fo llo w in g p o in ts : ( l ) v o te o f ap p ro v al; (2) type o f bonds; (3) payment o f p r in c ip a l;

9james H. Sm ith, Legal L im itation s on Bonds and T axation fo r P u b lic School B u lld in g s. Unpublished D octor*s T h e sis. New York: Teachers C o lleg e, Columbia U n iv e rsity , 1930, 117 pp.

Reproduced with perm ission of the copyright owner. Further reproduction prohibited without permission.

13 (4) maximum term o f paymentj (5) maximum r a t e o f in te re s t} (6) s a le r e ­ quirem ents f o r bonds} and (7) ta x r a t e s . Most o f th e s t a t e s re q u ire d a sim ple m a jo rity v o te to a u th o riz e a bond is s u e .

The o th e r s ta t e s v a rie d a l l th e way from a 55 p er c en t ma­

j o r i t y to a tw o -th ird s m a jo rity .

Twenty-four s t a t e s made u se o f th e

s e r i a l o r a m o rtiz a tio n bond compulsory.

Other s ta te s had le g a liz e d th e

u se o f s e r i a l bonds b u t had n o t made t h e i r use compulsory. In th e payment o f p r in c ip a l some s t a t e s re q u ire d annual payment on p r in c ip a l o f s e r i a l bonds.

O ther s ta t e s allow ed th e board o f education

to f i x th e annual in s ta llm e n ts .

Most o f th e s ta t e s had lim ita tio n s on

th e maximum number o f y e a rs a bond is s u e could run w ithout refu n d in g . R e s tr ic tio n s v a rie d a l l th e way from 20 y e a rs in tw enty s t a t e s to 50 y e a rs i n one s t a t e . The maximum i n t e r e s t r a t e v a rie d from 8 p er cen t in one s t a t e to 5 p er c en t in s ix s t a t e s .

As fo r th e s a le req u irem en ts, 34 s ta t e s r e ­

q u ire d t h a t no school bond could be sold a t le s s th an p a r.

These lim i­

t a t i o n s were th o u g h t to be th e r e s u l t s o f re a c tio n s follow ing p erio d s o f extravagance. The s a tu r a tio n p o in t f o r ta x a tio n v a rie d w ith th e p ro s p e rity of a p e rio d and a ls o w ith th e enthusiasm o f th e people f o r th e purpose f o r which th e ta x e s were le v ie d .

Smith recommended th a t 3 p er cent o f f u l l

v a lu a tio n o f p ro p erty he considered th e s a tu r a tio n p o in t fo r ta x a tio n . EssexlO made a study o f bonding v ersu s pay-as-you-go method o f f i ­ nancing school b u ild in g s .

He concluded t h a t n e ith e r bonding nor

IpDon E ssex, Bonding Versus Pav-as-vou-go in Financing o f School B u ild in g s . U npublished Doctor* s T h e sis. Hew York: T eachers C ollege, Columbia U n iv e rs ity , 1931, 101 pp.

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14 pay-as-you-go was d e s ir a b le under a l l circu m stan ces.

The pay-as-you-go

p revented extravagance and e lim in a te d i n t e r e s t c o s t.

Bonding, however,

took th o se funds which most people could a ffo rd to give and d is tr ib u te d th e burden over a p erio d o f y e a rs .

E ssex contended t h a t th e bonding plan

had th e d i s t i n c t advantage o f being f e a s ib le , not n e c e s s a r ily d e s ir a b le , under a l l circu m stan ces.

The pay-as-you-go method was d e s ir a b le i n th o se

la r g e communities t h a t b u ild a n n u a lly . The p o lic y f o r fin a n c in g c a p i t a l o u tla y must be f le x ib l e .

In a

p e rio d o f h ig h i n t e r e s t r a t e s , when th e value o f th e d o lla r i s low, th e pay-as-you-go p lan should be usedj b u t i f i n t e r e s t r a t e s a r e low and th e v alu e o f th e d o l l a r i s h ig h , th e bonding method could be put to th e b e s t use. In th e fin a n c in g o f any school p la n t, Essex adhered to two b a s ic p r in c ip le s which must be considered b e fo re any method o f fin a n cin g was chosen.

These p r in c ip le s were:

( l ) th e school b u ild in g needs o f a com­

m unity should be ad e q u ately provided f o r ; and (2) school b u ild in g s should be financed on a b a s is t h a t i s f a i r and j u s t to a l l concerned. D el M anzo^ developed a simple form ula and ta b le s by means o f which th e t o t a l bonding p o lic y b e s t s u ite d to a given school system could be found.

His study d is c lo s e d t h a t some o f th e more im portant f a c to r s in

e s ta b lis h in g a bonding p o lic y were th e fo llo w in g :

to provide fo r school

p o p u la tio n ; to p ro v id e s u f f i c ie n tly to make th e p re se n t p la n t adequate; to e s ta b lis h an annual d eb t s e rv ic e o f optimum amount to handle th e bond

•^M ilton C h arles Del Manzo, P u b lic School Bonding in Iowa. Unpublished D o c to r's T h e sis. Iowa C ity , Iowa: U n iv e rsity o f Iowa, V ol. I l l , No. 5 , 1933, 57 pp.

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15 program; to is s u e and r e t i r e bonds a t th e most opportune tim es; to equal­ i z e th e d eb t s e rv ic e and keep o u tstan d in g indebtedness below le g a l l i m i t s ; to s e l l bonds to advantage on th e m arket; and to determ ine a d i s t r i c t 's a b i l i t y to pay.

He suggested t h a t th e average o u tstan d in g d e b t should

n o t exceed o n e -h a lf o f th e t o t a l i n i t i a l c o s t of th e school p la n t.

Del

Manzo a lso recommended t h a t th e growth in ta x a b le v a lu a tio n diould pro­ v id e s u f f i c i e n t ly fca* th e in c re a s e in school p o p u latio n . M asters' Theses Of a l l th e M aste rs' th e s e s w r itte n on th e s u b je c t, only -three were s e le c te d f o r review h e re .

They were s e le c te d from th e l a t e r s tu d ie s i n

o rd e r to pro v id e a p ic tu re o f more re c e n t p r a c tic e . In 1940, P affo rd

12

made a study o f th e methods of fin a n c in g school

b u ild in g s and th e f in a n c ia l p r a c tic e s which grew out o f th e s e methods. The study was lim ite d to th e F i r s t C ongressional D i s t r i c t o f G eorgia. Because o f th e t a x lim ita tio n s and sm all p ro p erty v a lu e , the pay-as-you-go method o f fin a n c in g school b u ild in g s was n o t f e a s ib le i n t h i s d i s t r i c t . The d i f f e r e n t a s p e c ts o f bonded in d eb ted n ess i n th e F i r s t C ongressional D i s t r i c t were th e fo llo w in g :

( l ) th e la r g e r th e a s se s se d v a lu a tio n o f

p ro p e rty i n a d i s t r i c t , th e sm aller was th e p ercentage of assessm ent bonded; (2) th e r e was a tendency f o r th e i n t e r e s t r a t e s to d e c lin e a s th e s iz e o f th e bond is s u e in c re a se d ; (3) th e f a l l in a sse sse d v a lu e s due to th e d ep ressio n had r e s u lte d in th e bonding o f sev e ra l d i s t r i c t s beyond

^W aldo C ec il P a ffo rd , An A n aly sis o f th e Bonded Indebtedness of School D i s t r i c t s in th e F i r s t C ongressional D i s t r i c t o f G eorgia. Un­ p u b lish ed M a s te r's T h e sis. Duke U n iv e rsity , 1940, 65 pp.

R eproduced with perm ission of the copyright owner. Further reproduction prohibited without perm ission.

16 th e le g a l l i m i t s ; (4) th o se d i s t r i c t s which bonded when i n t e r e s t r a t e s were low were a b le to r e t i r e t h e i r d e b t more e a s ily than th o se who bonded a t h ig h e r r a t e s ; (5) in many cases where a le v y was made fo r bond is s u e s , p a r t o f th e c o lle c tio n s were d iv e rte d to o th e r purposes; and (6) the f a i l u r e to in v e s t sin k in g -fu nd money a s p re sc rib e d by law had been common p r a c tic e in s e v e ra l communities.

P affo rd recommended t h a t th e s e r i a l -

ty p e bond be u sed , fo r i t was th e l e a s t expensive and th e sim p lest to ad­ m in is te r .

The bond is s u e should n o t be allow ed to exceed 20 y e a rs.

S ince th e s t a t e was assuming an in c re a sin g r e s p o n s ib ility f o r th e in ­ s tr u c tio n a l c o s t o f th e ed u c a tio n a l program, i t seemed proper t h a t th e s t a t e should assume a corresponding sh are o f th e r e s p o n s ib ility in manag­ in g th e fin a n c in g and c o n s tru c tio n o f school p la n ts . The study tr e a te d th e in v e s tig a tio n o f bonding p r a c tic e in th e d i s t r i c t th o ro u g h ly .

The in tro d u c tio n o f th e s t a t e ’ s r e s p o n s ib ility to

a b u ild in g program fu rn ish ed a new view point on p la n t fin a n c in g which some s ta t e s were a c tu a lly p u ttin g in to e f f e c t. S m ith ^ in v e s tig a te d -the bonded indebtedness of Colorado school d i s t r i c t s from 1920 to 1940.

The bond i n t e r e s t r a t e s were g e n e ra lly high

and v a rie d g r e a tly among d i s t r i c t s in s im ila r economic c o n d itio n s.

Many

bond is s u e s were in y e a rs o f high i n t e r e s t r a t e s with few is s u e s i n y e a rs o f fav o rab le r a t e s .

A study o f th e d i s t r i c t s in th e poorer a re a s flowed

t h a t th e d e f a u lts , w a rra n ts, and Judgment bonds were caused by th e follow ­ in g :

n o n -c o lle c tio n o f ta x e s ; poor Judgment on th e p a r t o f school

13L ester V in c il Sm ith, A Study o f Bonded Indebtedness of Colorado School D i s t r i c t s 1920-40. Unpublished M aster’ s T h e sis. G reeley, Colorado: Colorado S ta te C ollege o f E ducation, 1941, 96 pp.

Reproduced with perm ission of the copyright owner. Further reproduction prohibited without permission.

17 budget-m akers; and o p e ra tio n o f a v ic io u s cycle o f d e b t a s allow ed under e x is tin g law . Smith recommended t h a t th e f e d e ra l government should co n tin u e to su b sid iz e school b u ild in g programs which would r e s u l t i n in creased h e a lth , h ap p in e ss, e d u c a tio n a l f a c i l i t i e s , and u n ity in our n a tio n . S chw arz^- ev alu ated th e bonding and cash-payment method o f fin a n c ­ in g school b u ild in g c o n s tru c tio n on th e newest b u ild in g s in Nebraska. The bonding method was used in 78 p er cen t o f s tr u c tu r e s b u i l t which pro­ vided f o r 81 per cen t o f th e e n t i r e c o s t f o r school b u ild in g c o n s tru c tio n . The cash-payment method was used in fin a n c in g 28.8 p er cen t o f th e school b u ild in g s which amounted t o 6 .6 per cent o f th e e n tir e c o s t o f b u ild in g c o n s tru c tio n .

R e g iste re d w arran ts were used to provide p a r t o f th e b u ild ­

in g fund in some 12 sc h o o ls.

The s tr a ig h t bond was used 34.1 p er cen t o f

th e tim e, w hile th e s tr a i g h t bond financed 65.8 p er cen t o f th e bonds is s u e d .

The 2 0-year bond was th e most p re v a le n t.

bonds dropped each y e a r d u rin g th e stu d y .

The i n t e r e s t r a t e o f

The cash-payment plan was recom­

mended by Schwarz i f d i s t r i c t s would adopt a long-term budgeting and b u ild ­ in g program and u se s c i e n t i f i c accounting p r a c tic e s . P e rio d ic a ls An attem p t was made to s e le c t a few a r t i c l e s from le a d in g p e rio d i­ c a ls in school a d m in is tra tio n to p re s e n t some phases o f school bonds not considered in th e review o f books and th e s e s .

■^•Clarence Schwarz, An E v a lu a tio n o f Bonding Versus Cash-Pavment P lan i n Financing School B u ild in g C o n stru ctio n in Nebraska. Unpublished M aster1s T h e sis. G reeley, Colorado: Colorado S ta te C ollege o f E d u catio n , 1941, 99 pp.

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18 G ried erl5 publish ed an a r t i c l e in 194-3 summarizing th e improvements t h a t mast ta k e p la ce in school bonding i f g r e a t lo s s e s were not to be expected from ex cessiv e r a t e s o f i n t e r e s t , u n n e c e s sa rily long p e rio d s o f re tire m e n t, and inad eq u ate p lan n in g .

G ried er, through case s tu d ie s made

in se v e ra l s t a t e s , dem onstrated t h a t bonding p r a c tic e was in f e r i o r to a c c e p ta b le s ta n d a rd s .

He s ta te d t h a t th e major weaknesses were g e n e ra lly

la c k o f adequate ed u c atio n al p lan n in g , acceptance o f le g a l maximum term s a s minimum, l i t t l e re c o g n itio n o r e x iste n c e o f a c a lla b le f a c to r , poorly co n stru c ted r e tire m e n t sch ed u les, and incom plete bond and i n t e r e s t ac­ co u n ts.

He recommended a b r i e f o u tlin e o f bonding p o lic y which allow ed

f o r m o d ific atio n due to lo c a l c o n d itio n s .

He suggested, however, t h a t

d e p a rtu re from th e s e p r in c ip le s should be made only a f t e r c a re fu l c o n sid e r­ a tio n . Mulford

n ZL

d isc u ssed some o f th e m ajor a s p e c ts o f borrowing which

should be considered by every school board and su p e rin te n d e n t.

He poin ted

o u t t h a t th e re was a v a s t d iff e r e n c e between th e average law yer who was r e ta in e d by a school d i s t r i c t and a well-known s p e c i a l is t w ith accepted l e g a l o p in io n .

The board should t r y to fin d law yers who a r e recognized

by la r g e banking and bonding firm s p r io r to m arket tr a n s a c tio n s .

I f th is

i s done a much b e t t e r chance fo r m arketing th e bonds a t a low er i n t e r e s t r a t e i s p o s s ib le .

He suggested th e m arketing o f bonds i n a la r g e money

c e n te r , n o t a sm all lo c a l bank which may or may n o t be p r o f ic ie n t in long­ term borrow ing.

^ C a lv in G rie d e r, "School Bonding P o lic y ," The American School Board J o u rn a l. 106:41-42, Jan u ary , 194-3. ^ H e r b e r t M ulford, "What Are Your School Bonds Worth?" The American School Board J o u rn a l. 112:35-37, Jan u ary , 1946*

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19 Mulford contended t h a t th e s e r i a l bond had two main advantages over o th e r ty p e s .

F i r s t , o u tsta n d in g d e b t i s reduced with each payment and

bonding power i s a g a in r e s to r e d f o r f u tu r e u se .

Second, th e average tim e

a bond is s u e w ill be o u tstan d in g w ill be cu t in h a lf . He suggested th e in c lu s io n o f o p tio n a l cla u se s in th e bond form o f th e c o n tra c t; however, today* s i n t e r e s t r a t e s a r e so low t h a t any m a te r ia l change in them would be an advance r a th e r th an a d e c lin e . Although p o in tin g o u t t h a t th e r e a r e th r e e d i f f e r e n t methods by which bonds may be so ld —a u c tio n , p r iv a te s a le , and sealed b id —-he recommended t h a t th e sea led b id was b e s t because th e r e would be s u f f ic ie n t com petition to develop th e r e a l worth o f th e d i s t r i c t * s s e c u r itie s .

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CHAPTER I I I FINANCING SCHOOL PLANTS To determ ine th e most f e a s ib le method of fin a n c in g school p la n ts , t h i s g e n era tio n h as had th e o p p o rtu n ity to b e n e f it from both th e e x p e ri­ ences o f p a s t g en e ra tio n s and r e c e n tly po p u larized s c i e n t i f i c methods of d isc o v e rin g needs through b u ild in g and community su rv ey s.

I f th e l a t t e r

a r e delayed in many communities fo r an o th er two or th r e e y e a rs , however, t h i s advantage may v an ish because o f th e immediate need f o r p la n t space to house th e v a s t in c re a se in school p o p u la tio n . U n til a few y e a rs ago, l i t t l e emphasis was given to "the s c ie n ti f i c p lanning o f school b u ild in g c o n s tru c tio n in term s o f ed u catio n al p h ilo s o phy and community needs.

17

More and more we a r e r e a liz in g th e need fo r

lo n g -term p lanning because every b u ild in g which i s e re c te d te n d s to a f f e c t th e economic e f f o r t and ed u c a tio n a l program f o r th e community f o r y e a rs to come. I f th e borrowed c a p i t a l f o r p la n t c o n s tru c tio n i s to be used to i t s maximum e f f ic ie n c y , d e f i n i t e plan s f o r methods o f fin a n cin g school p la n ts w ill be r e q u ire d . in clu d ed :

In th e p a s t, methods o f fin an cin g school p la n ts have

( l ) s t r a i g h t bonds, (2) sin k in g fund, (3) s e r i a l bonds, (4) pay-

as-y o u -g o , and (5) w a rra n ts.

I t w ill be th e purpose o f t h i s c h a p te r to

d is c u s s each o f th e s e methods w ith r e la tio n s h ip to b a sic p r in c ip le s

l^D avid W eglein, "P. W. A. I s One S tep Toward What Should Be a Perma­ n e n t P o licy fo r School House C o n s tru c tio n ,” American School Board J o u rn a l. 1 9 :3 9 , A p ril, 1937.

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21 in v o lv ed , ad v an tag es, d isad v an tag es, f i n a l c o s t, and p a s t usage.

The

l a t t e r p a r t o f th e c h ap ter i s devoted to a p re s e n ta tio n of th e le g a l lim ita tio n s o f bonding in th e S ta te o f Wyoming, to g e th e r vath c e r ta in re fe re n c e s to th e U nited S ta te s a s a th o le . S tr a ig h t Bonds The s tr a ig h t-te r m bond i s an is s u e fo r a c e r ta in s ta te d period o f tim e w ith th e t o t a l p r in c ip a l redeemed a t th e m a tu rity d a te .

Fowlkes de­

f in e s th e s tr a i g h t bond a s "a bond f lo a te d fo r a s p e c ific number o f y e a rs , b earin g i n t e r e s t a n n u a lly , sem i-annually or q u a r te r ly , a l l p r in c ip a l be­ in g paid a t m a tu rity .”^

S ince th e t o t a l p r in c ip a l i s due a t some f u tu r e

d a te , th e r e a r e o n ly two p o s s ib le methods o f e lim in a tin g th e d e b t.

The

f i r s t i s through a sin k in g fund, u s u a lly th e most f e a s ib le o f th e tvro, and th e second i s through a high ta x ley y in t h a t p a r tic u la r y e a r in which th e bonds a r e d ue.

The f i r s t method ”i s so e a s ily a c c e s s ib le to unscrupu­

lo u s p o l i t i c i a n s t h a t i t i s an -unsafe method to u s e . " ^

Because o f ta x

le v y lim ita tio n s th e second i s im p ra c tic a l in most c a se s. D esp ite t h e i r d isa d v a n ta g es, s tr a ig h t bonds have been common in th e p a s t.

The pro b ab le reaso n fo r th e u se o f t h i s ty p e bond by schools has

been th e market c o n d itio n o r p re ss u re e x erted on th e a d m in is tra tio n by prom inent in v e s to rs in th e community.

D iscu ssin g s e r i a l bond m arketing

c o n d itio n s, S ak o lsk i re p o rte d :

-^John Guy Fowlkes, "The R etirem ent o f School Bond I s s u e s ," American School Board J o u rn a l. 66:41, Jan u ary , 1923. ■^Ernest Bloom, A Study of Bonds Issu ed fo r E ducational Purposes in A S e lec te d Group o f C ounties in Wyoming. Unpublished M aster’ s T h e sis. Laram ie, Wyoming: U n iv e rsity o f Wyoming, 1930, p . 23.

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22 Market c o n d itio n s fre q u e n tly determ ine -whether i t i s b e tte r to put out sin k in g funds or s e r i a l bonds. I f th e p u b lic d e s ir e s lo n g -term bonds, c o rp o ra tio n s, c i t i e s , and s ta t e s w ill fin d i t e a s ie r to d isp o se o f sin k ing fund bonds. On th e o th e r hand, i f th e money m arket i s in such a c o n d itio n t h a t most in v e s to rs de­ s i r e sh o rt-te rm m a tu r itie s , borrow ers w ill fin d a b e t t e r market fo r s e r i a l b o n d s.20 I t has u s u a lly proved tr u e t h a t a s tr a i g h t bond r e q u ire s an e x cessiv e amount o f i n t e r e s t over th e l i f e o f th e is s u e .

For example, an is s u e o f

#100,000 a t 5 p er c en t i n t e r e s t f o r 20 y e a rs r e q u ire s a t o t a l payment on p r in c ip a l and i n t e r e s t o f #200,000.

The c o s t o f a b u ild in g fin an ced in

t h i s manner has been a c tu a lly doubled.

A second o b je c tio n to th e s t r a i g h t -

term bond i s th e i n a b i l i t y o f many d i s t r i c t s to p ro p e rly manage a sin k in g fund o r to le v y a la r g e enough t a x to redeem th e t o t a l is s u e a t th e d a te o f m a tu rity j th e r e fo r e , th e o n ly a lt e r n a t iv e i s to refu n d a p a r t o r a l l o f th e is s u e .

T his not only s h i f t s th e burden from th e p re se n t g e n e ra tio n

to th e n ex t g e n e ra tio n b u t a ls o in c re a s e s th e c o s ts of d eb t s e r v ic e .

It

does n o t ta k e long f o r th e t o t a l indebtedness to exceed th e le g a l lim i­ t a t i o n , e s p e c ia lly in th o se d i s t r i c t s of low asse sse d v a lu a tio n , and to accum ulate to such an e x te n t t h a t th e d i s t r i c t m y never be a b le to meet i t s o b lig a tio n .

Linn concluded t h a t th e s tr a ig h t bond should not be used

f o r th e follo w in g reaso n s: The f i r s t reaso n i s t h a t th e t o t a l i n t e r e s t payments during th e l i f e o f th e bonds a r e g r e a te r th an -they would be w ith e ith e r a sin k in g fund o r s e r i a l bonds iss u e d a t th e same r a t e fo r a lik e p erio d o f tim e . The second o b je c tio n i s t h a t some d i s t r i c t m y

20

A. M. S a k o lsk i, Elem ents of Bond Investm ent. P re s s Company, 1922, p . 52.

New York:

Ronald

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23 refu n d th e s tr a ig h t- te r m bond in s te a d of paying them a t th e d a te o f m a tu rity , th u s both postponing th e f in a l payment and adding to th e i n t e r e s t b u r d e n . Sinking-Fund Bonds The sin k in g -fu n d bond i s th a t bond which c r e a te s a re s e rv e fund bys e tt i n g a s id e a c e r ta in sum o f money each y e a r so a s t o b u ild up enough c a p i t a l to redeem th e i n i t i a l p r in c ip a l a t a s p e c ifie d f u tu r e d a te .

A

sin k in g -fu n d bond i s d i f f e r e n t from th e s tr a i g h t bond only in te r n s o f the agreement t h a t th e d eb to r w i l l , in a d d itio n to making th e p e rio d ic i n t e r ­ e s t payments, s e t a s id e a t r e g u la r p erio d s a c e r ta in amount toward th e payment o f th e p r in c ip a l o f th e bonds a t m a tu rity .

22

During th e accumu­

l a t i o n o f th e p r in c ip a l from revenue, th e i n t e r e s t t h a t i s gained from th e s e in v e ste d bonds i s known a s imputed i n t e r e s t . Whether o r n o t th e tax p ay er g a in s or lo s e s under t h i s type o f bond­ in g plan depends on th e d iffe re n c e between th e imputed i n t e r e s t and i n t e r ­ e s t a tax p ay er could g ain by use of th e revenue, had he h e ld i t h im se lf r a th e r th a n tu rn e d i t over to th e school d i s t r i c t fo r investm ent. In th e p a s t, th e school boards have probably gained more by a s in k ­ in g fund th a n an in d iv id u a l sm all tax p ay er could gain by investm ent of h is funds u n t i l m a tu rity o f th e is s u e .

One o f th e main reasons f o r th e

d iff e r e n c e i s t h a t la r g e sums o f money can u s u a lly be in v e ste d to a b e t t e r advantage th an many sm all sums in d iv id u a lly .

On th e o th e r hand, la r g e

o rg a n iz a tio n s have a b e t t e r o p p o rtu n ity to in v e s t t h e i r funds a t a h ig h er

23-Ilnn, op. c i t . , p. 357 ^Sakolski, op. cit.. p. 90 .

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24 r a t e o f r e tu r n th a n do in d iv id u a ls .

C e rta in la r g e tax p ay ers m ight,

th e r e f o r e , make b e t t e r u se o f t h e i r money than can school d i s t r i c t s through a sin k in g fund.

The problem o f determ ining where th e advantage

l i e s i s complex in any e v en t. P ast ex p erien ce has shown t h a t q u e stio n a b le management of sinking funds may be a fundam ental c r itic is m of t h e i r continued u se .

School

board members and a d m in is tra to rs a r e not o fte n q u a lif ie d to e n te r th e investm ent f i e l d , and mismanagement may fre q u e n tly be expected to accompa­ ny t h e i r a tte m p ts to do so .

Chamberlain pointed out t h i s danger in th e

fo llo w in g statem en t: I t i s n ecessary on ly to re p e a t t h a t th e sin k in g fund p r in c i­ p le , whether a p p lie d to government, s ta t e , m unicipal, or corpo­ r a t io n is s u e , i s w astefu l and re n d e rs a fund l i a b l e to d e p le tio n by m isa p p ro p ria tio n , embezzlement, and o th e r fra u d s , and to de­ p r e c ia tio n o f i t s in v e s tm e n ts .^ S e r ia l Bonds S e r ia l bonds a r e th o se is s u e s c o n s is tin g o f a number o f in d iv id u a l bonds, l i k e o r u n lik e in denom inations, which m ature i n in s ta llm e n ts de­ signed by a predeterm ined schedule o f r e tir e m e n t. o f a s e r i a l bond i s :

Fowlkes' d e f in itio n

"A s e r i a l bond i s one t h a t i s r e t i r e d by payment

made a t r e g u la r i n t e r v a ls , i n t e r e s t being paid a n n u a lly , sem i-annually, o r q u a r te rly a s

d e s ire d .

"24- Any p o rtio n o f th e s e r i a l is s u e can be a s ­

signed d i f f e r e n t m a tu rity d a te .

York:

There i s , however, a reaso n ab le

^L aw erence Chamberlain, The P r in c ip le s of Bond Investm ent. Henery H olt C o., 1911> p . 152. ^ F o w lk e s, op. c i t . . p . 41.

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New

25 u n ifo rm ity in th e amount r e t i r e d each p eriod and in th e i n te r v a ls between payment d a te s .

S ak o lsk i h as poin ted o u t a disadvantage in th e m arketing

o f s e r i a l bonds: The d i f f i c u l t y w ith an o f fe r in g o f many m a tu r itie s i s t h a t each m a tu rity i s n o t e q u a lly i n demand. C e rta in m a tu r itie s a r e bought and th e r e s t become a drug on th e m arket. As p ointed out b e fo re , i t i s la r g e ly a q u e stio n o f making th e bonds such a s w ill s a t i s f y th e p re v a ilin g p u b lic d e m a n d . ^ 5 T h is d i f f i c u l t y i s u s u a lly overcome through varying r a t e s of i n t e r e s t made a p p lic a b le to th e d i f f e r e n t m a tu rity p e rio d s . In c o n tr a s t to th e one o b je c tio n to s e r i a l bonds, Mort and R eusser have l i s t e d s e v e ra l b e n e f its t h a t can be gained by u sin g s e r i a l bonds: 1 . The annual payment may be arran g ed in such a manner a s to provide f o r a wide v a r ie ty of c o n d itio n s found i n lo c a l d is tric ts . 2 . L arg er payments may be made e a r ly in th e p e rio d , th e payments may be equal throughout th e p e rio d , or la r g e r payments may be made tow ard th e end o f th e p e rio d . 3 . The ta x r a t e f o r bond re tire m e n t and bond i n t e r e s t may be k ep t f a i r l y uniform throughout th e p e rio d , thus avoiding any ex cessiv e r a t e i n one or more y e a rs . 4 . The sy stem atic payment i s continued in th e bond is s u e i t s e l f a nd o b v ia te s th e n e c e s s ity o f c re a tin g a sin k in g fund. 5 . The e n tir e is s u e i s s e t up a t th e tim e i t i s sold and th e r e i s no o p p o rtu n ity f o r changes in th e school board p o lic y to a f f e c t th e re tire m e n t o f any o f th e bonds. 6 . The g rad u al re d u c tio n o f th e i n t e r e s t r a t e s throughout th e period r e p re s e n ts a saving in money from t h i s type o f bond a s compared to th e s tr a ig h t-te r m bond.2 ° Although th e s e r i a l bond i s s e le c te d a s th e b e s t method of fin a n c in g , a p o o rly planned schedule f o r th e re tire m e n t o f th e is s u e can e a s ily make

25sak olsk i, l o c . c i t . ^ M o rt and R eusser, op. c i t . . p . 360.

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26 i t l e s s a t t r a c t i v e th a n any o f th e o th e r methods c ite d .

The re tire m e n t

o f a bond is s u e depends p rim a rily on th e lo c a l u n i t 's a b i l i t y to redeem th e bonds.

The community1s a b i l i t y to pay th e d eb t over a c e r ta in p erio d

i s b a s ic a lly dependent on th e d i s t r i c t * s property v a lu a tio n and th e p re s e n t in d eb ted n ess of th e school d i s t r i c t .

Only a c a r e fu l a n a ly s is

o f th e d i s t r i c t * s co n d itio n w i l l determ ine th e b e s t schedule fo r th e com­ m unity.

Among th e f iv e ways Fowlkes gave to schedule th e re tire m e n t of

bond is s u e s , th e fo llo w in g th re e a r e th e most p r a c t ic a l: 1 . Annual in s ta llm e n ts planned in which th e an n u al payments on p r in c ip a l a r e eq u a l. 2 . The a n n u ity system in ^hich th e t o t a l annual payments a r e approxim ately eq u a l. 3 . A schedule in which th e annual payments on th e p r in c ip a l a r e unequal and th e l a r g e s t annual payments on th e p r in c ip a l come w ith in th e y e a rs im m ediately follow ing d a te o f issu a n c e . Each o f th e above schedules o f re tire m e n t i s exem plified by a t a b l e , so a s to p re se n t a c le a r e r p ic tu r e .

This re tire m e n t schedule w ith equal

p r in c ip a l payments p re sen te d in T able I w ill show t h a t th e t o t a l payments c o n tin u a lly d e crea se which may be a d e f i n it e advantage fo r t h i s ty p e o f re tire m e n t p la n .

The continuous d ecrease in th e amount p aid each y ear

w i l l h e lp to provide f o r in creased m aintenance of th e b u ild in g a s i t g e ts o ld e r .

The c o s t o f th e b u ild in g i s d is tr ib u te d p r a c t ic a lly eq u a lly over

th e y e a rs and does not burden th e f u tu r e in case th e r e be need fo r ad­ d i t i o n a l b u ild in g s in th e community. To enable equal payments each y e a r, th e p r in c ip a l must be sm aller i n th e beginning y e a rs and in c re a se in l a t e r y e a rs to o f f s e t th e d ecrease

^ F o w lk es, School Bonds, op. c i t . , p . 84-.

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27 T able I R etirem ent Schedule f o r S e r ia l Bond, Equal Annual P rin c ip a l Payments ($100,000 is s u e f o r te n y e a rs a t 1 p er cent i n t e r e s t ) Year

Payment on P rin c ip a l

I n te r e s t Payments

T o ta l Annual Payments

1941 1942 1943 1944 1945

110,000 10,000 10,000 10,000 10,000

$1,000 900 800 700 600

$11,000 10,900 10,800 10,700 10,600

1946 1947 1948 1949 1950

10,000 10,000 10,000 10,000 10,000

500 400 300 200 100

10,500 10,400 10,300 10,200 10,100

$100,000

#5,500

#105,500

T o ta l

i n i n t e r e s t , a s shown i n T able I I .

The denom ination o f th e bonds w ill

c o n tro l th e e x te n t to which r e l a t i v e l y equal t o t a l annual payments may be p ro vided.

This ty p e o f re tire m e n t i s most a p p lic a b le to t h a t community

which does n o t have any n a tu r a l re so u rc e s or any p o s s i b i lity o f becoming an i n d u s t r i a l c e n te r; th e r e fo r e , i t i s u s u a lly b e s t s u ite d to a g r i c u l tu r a l d is tric ts .

The a g r i c u l tu r a l d i s t r i c t u s u a lly has an e v a lu a tio n and de­

s i r e s a uniform t a x r a t e .

Of course, j u s t because t h i s re tire m e n t i s

scheduled in equal payments does n o t mean t h a t th e t o t a l is s u e cannot be p a id o f f w ith in a few y e a rs provided an o p tio n a l c la u se w i ll allow com­ p le te re tire m e n t. T able I I I in d ic a te s one of th e v ario u s ways in which th e unequal p r in c ip a l payments can be scheduled.

P ro v isio n s can be made to e it h e r

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28 T able I I R etirem ent Schedule fo r S e r ia l Bond, Equal T o ta l Annual Payments (#100,000 iss u e f o r te n y e a rs a t 1 per cent i n t e r e s t ) Year

Payment on P r in c ip a l

I n te r e s t Payments

T o tal Annual Payments

1941 1942 1943 19441945

#9,550 9,650 9,750 9,850 9,950

#1,000.00 904.50 808.00 710.50 612.00

#10,550.00 10,554.50 10,558.00 10,560.50 10,562.00

1946 1947 1948 1949 1950

10,050 10,150 10,250 10,350 10,450

512.50 412.00 310.50 208.00 104.50

10,562.50 10,562.00 10,560.50 10,558.00 10,554.50

#100,000

#5,582.50

#105,582.50

T o ta l

T able I I I R etirem ent Schedule fo r S e r ia l Bonds, Unequal Annual P r in c ip a l Payments (#100,000 is s u e f o r te n y e a rs a t 1 p er cent i n t e r e s t ) Year

Payment on P r in c ip a l

1941 1942 1943 1944 1945

#25,000 25,000 10,000 10,000 5,000

#1,000 750 500 400 300

#26,000 25,750 10,500 10,400 5,300

1946 1947 1948 1949 1950

5,000 5,000 5,000 5,000 5,000

250 200 150 100 50

5,250 5,200 5,150 5,100 5,050

#100,000

#3,700

#103,700

T o ta l

I n te r e s t Payments

T o ta l Annual Payments

Reproduced with perm ission of the copyright owner. Further reproduction prohibited without permission.

29 In c re a se o r d e cre ase th e payments o f th e p r in c ip a l i n th e re tire m e n t schedule a s tim e p a sse s.

In t h i s p a r tic u la r in sta n c e th e la r g e r p r in c i­

p a l payments were made in th e e a r l i e r y e a rs .

T his type o f re tire m e n t

schedule can be used in case o f r a p id ly d ecreasin g a sse sse d v a lu a tio n and m ill le v y , th e r e fo r e d ecreasin g th e f i n a l payments.

This re tire m e n t

p lan a lso allo w s th e d i s t r i c t to reco v er bonding c a p a c ity w ith r a p id ity i f i t fo re s e e s th e need f o r a d d itio n a l b u ild in g c o n s tru c tio n b e fo re p re s e n t in d eb ted n ess can be com pletely m et.

A new re tire m e n t schedule

f o r a second bond is s u e could th en be planned f o r sm aller payments d u rin g th e e a r ly y e a rs when th e two must o v e rla p . A bond re tire m e n t schedule p roviding t o t a l annual payments which a r e sm aller in th e e a r l i e r y e a rs and in c re a se in l a t e r y e a rs i s n o t i l l u s ­ t r a t e d h ere b u t may be used in d i s t r i c t s where a ssessed v a lu a tio n i s g ra d u a lly in c re a s in g .

The main f a c to r to remember i s t h a t any a l t e r a t io n

can be made o f th e above two methods to meet th e in d iv id u a l needs o f any community. Pay-A s-Iou-Go During th e tw e n tie s , th e mounting o f th e bonded in d eb ted n ess f o r sch o o ls brought about th e se rio u s c o n s id e ra tio n of th e pay-as-you-go p la n . In th e pay-as-you-go p la n , th e t o t a l p r in c ip a l i s paid from d ir e c t ta x ­ a tio n a t th e tim e o f c o n s tru c tio n .

A ll i n t e r e s t payments a r e e lim in a te d .

I t cannot be denied t h a t in a c tu a l cash paid o u t, bonding i s a more ex­ pensive method o f fin a n cin g c a p ita l o u tla y th an th e pay-as-you-go method. Like th e sin k in g fund method, th e f i n a l c o st o f t h i s type o f fin a n c ­ in g must be determ ined by th e r e la tio n s h ip o f i n t e r e s t th e money could

Reproduced with perm ission of the copyright owner. Further reproduction prohibited without permission.

30 earn f o r each in d iv id u a l and what th e taxpayer i s saved by d i r e c t payment. For example, i f an in d iv id u a l can earn 4 p er cen t on a s a fe investm ent and th e d i s t r i c t must pay 6 p er c e n t f o r borrowed money, i t may be b e s t f o r th e tax p ay er to use a pay-as-you-go method of fin a n c in g . On th e o th e r hand, E ssex has p o in ted o u t t h a t under c e r ta in con­ d it i o n s th e bonding method may not be a s expensive a s a cu rso ry exami­ n a tio n would in d ic a te . Take f o r example, a school b u ild in g c o stin g #500,000 financed by a 20-year bond is s u e a t 5 p er c o a t, a l l t o t a l annual payments being approxim ately e q u al. The t o t a l c o s t, in clu d in g i n t e r e s t and redem ption, w ill be approxim ately $800,000, with an annual c o st of #40,000. I t i s p la in to see t h a t th e t o t a l c o st i s #300,000 in ex­ c e s s o f th e c o s t by d i r e c t payments. But h as "this been a saving to th e tax p ay er by use o f th e bonding method? C onsider th e tax p ay er whose share o f th e c o st o f d ir e c t pay­ ment w ill be $500. He may pay a l l t h i s in one y e a r. On th e same b a s is , h is sh are o f th e t o t a l c o s t in c u rre d by bonding w ill be #800; b u t t h i s amount w ill be d is tr ib u te d over tw enty y e a rs , and th e annual charge to him w ill be about $40. I f th e pay-as-you-go p lan i s used, he w ill n o t have th e u se o f h is $500 a f t e r th e f i r s t y e a r. I f th e bonding plan i s used, he can s t i l l u se $460 out o f th e $500 th e f i r s t y e a r; #420 th e second y e a r; #380 th e th i r d y e a r; and so on f o r tw elve and o n e -h a lf y e a rs . I f i t i s assumed t h a t th e ta x p a y e r’ s money i s worth 6 p er cen t to him, th e accum ulated i n t e r e s t on th e amount th e bonding p lan allo w s him to u se t o t a l s $172.20. On t h i s b a s is , th e n , bonding c o s ts th e tax p ay er $628.80 in s te a d o f #800.00. ° Of co u rse, th e amount o f money a person can save through pay-as-yougo fin a n cin g i s o n ly one o f th e many f a c to r s to be co n sid ered .

E ssex,

i n h i s study o f Bonding Vs. Pay-As-You-Go. considered th e r e l a t iv e m e rit o f th e two p la n s.

"People buy more c r i t i c a l l y viaen they a r e paying cash

th a n when th ey a r e paying by i n s t a l l m e n t s ." ^

In too many cases when th e

^%)on E ssex, "Bonding Vs. Pay As You Go," American School Board J o u rn a l. 83:15, O ctober, 1931. 29 l b i d .,

p .

17.

Reproduced with perm ission of the copyright owner. Further reproduction prohibited without perm ission.

31 amount to be p aid i s d is tr ib u te d over a long period of tim e, th e buyer i s more concerned about th e fu tu r e payments than th e a c tu a l product he i s r e c e iv in g .

By u sin g th e pay-as-you-go plan th e tax p ay er liv in g in th e

community a t th e tim e o f c o n s tru c tio n w ill pay th e e n t ir e c o s t.3 ^

There

a r e two p o in ts o f view t h a t can be taken on t h i s p a r tic u la r statem en t. One i s t h a t th e m a jo rity o f p a re n ts do n o t wish to burden t h e i r c h ild re n w ith a d eb t in th e f u tu r e .

On th e o th e r hand, some b e lie v e t h a t a l l who

u se a school b u ild in g should meet t h e i r p ro p o rtio n a te d ia re o f th e t o t a l c o s t. With th e p re se n t c o n d itio n s o f ra p id growth in school p o p u latio n and a tremendous backlog o f school b u ild in g needs, i t is ev id en t t h a t in th e m a jo rity o f communities, th e pay-as-you-go method cannot be used.

ttTo

adopt a pay-as-you-go p la n would mean to d ep riv e a school system of th e housing which i s u rg e n tly n eeded.” 31

Few communities would a t p re se n t be

a b le to meet more th an a very sm all f r a c tio n of t h e i r new c o n s tru c tio n needs by d i r e c t ta x a tio n . In th e l a s t paragraph o f h is study, E ssex concluded: No one p lan i s s a tis f a c to r y or d e s ir a b le under a l l circum­ s ta n c e s. I t i s unwise fo r school boards to adopt any p lan w ith th e i n f le x ib le d e term in a tio n of h o ld in g to th e adopted plan r e ­ g a rd le s s o f fu tu r e developm ents. The plan t h a t may be considered s a tis f a c to r y o r d e s ir a b le i n one y e a r may have to be e ith e r d is ­ carded o r m odified in an o th er y e a r . 32

30 lb id . . p . 20. 33-Frank Bruce, "Bonded Indebtedness fo r School Systems,*1 American School Board J o u rn a l. 77:5 7 , August, 1928. 3^Essex, Bonding Versus Pav-as-vou-go in Financing o f School Build­ in g s . Unpublished Doctor*s T h esis, op. c i t . , p . 68.

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32 W arrants "Any o f f i c i a l document a u th o riz in g th e payment o f money a t a fu tu r e tim e and b ea rin g i n t e r e s t -u n til payment may be defined a s a tim e w a r r a n t." ^ Borrowing in th e p a s t has been o f two d i s t i n c t ty p e sj namely, th e s h o rt­ term w arrant which was o r ig in a lly in ten d ed to cover a t a x period vhich was u s u a lly one y e a r, and th e second ty p e , th e long-term borrowing by bonds a s p re v io u sly d isc u sse d .

D espire th e o r ig in a l i n t e n t , w arrants

have fre q u e n tly been allow ed to accum ulate and drag on u n t i l i t becomes n ec essa ry to co n v ert them in to a bonded d eb t. H alsey in a study o f p u b lic d eb t in F lo rid a found: Thus th e tim e w arrant becomes fre q u e n tly an instrum ent fo r adding to th e t o t a l d eb t beyond th e amount allow ed f o r b o n is, or f o r adding to th e d eb t w ithout th e n e c e s s ity of a p u b lic e le c tio n on an a d v e rtis e d s a l e . 34 Johns s ta te d : S h o rt-term lo a n s fo r c u rre n t expenses in a n tic ip a tio n o f ta x c o lle c tio n s sometimes become lo n g -term lo an s by th e process o f pav­ in g f lo a tin g d e b ts through th e s a le of lo n g -term refunding b o n d s . 35 Giving th e school board th e power to borrow money w ithout g e ttin g perm ission from th e people o f th e d i s t r i c t i s th e s ig n if ic a n t f e a tu re which makes th e w arrant u n d e s ira b le .

Although not many c a se s seem to

e x i s t where lo c a l u n i t s a c tu a lly fin an ced p la n t c o n s tru c tio n from w a rra n ts,

33Halsey, op. c i t . . p . 33. 34I b i d . , p . 33. 35r . l . Jo h n s, "R egulations and L im ita tio n s o f C re d it to Boards o f E d u catio n ," Review o f E d u c atio n al R esearch. 11:190, A p r il, 1941.

Reproduced with perm ission of the copyright owner. Further reproduction prohibited without permission.

33 some d i s t r i c t s used w arran ts to d e fra y c u rre n t expenses and make a d d itio n s to school p la n ts . Legal lim ita tio n s in looming I t should be k e p t in mind t h a t th e a u th o r iz a tio n , issu a n c e , and s a le o f bonds a r e lim ite d by s t a t e c o n s titu tio n s and s ta t u t e s .

Although many

s t a t e s re q u ire th e issu an ce o f s e r i a l bonds, in th e S ta te of Wyoming " th e board or o th e r p u b lic body having a u th o r ity to iss u e such bonds may a t t h e i r d is c r e tio n d iv id e such is s u e s in to s e r i a l so t h a t s u b s ta n tia lly equal amounts o f in d eb ted n ess s h a ll n a tu re a n n u a lly ." ^

In o th e r words, s e r i a l

bonds may be used by d i s t r i c t s , but i t i s n o t compulsory to u se them. 1938 th e s e r i a l bond was re q u ire d by th e s ta t u te s o f 30 s t a t e s . ^

In

T his

compulsion may seem unwise e s p e c ia lly vhen the method o f fin a n cin g used by th e d i s t r i c t must n o t n e g le c t to tak e th e l o c a l s itu a tio n in to con­ s id e r a tio n .

N a tu ra lly , what i s b e s t fo r one community need n o t hold tr u e

f o r a n o th e r, but many o f th e a u t h o r itie s m ain tain , from th e a d m in is tra tiv e sta n d p o in t, a s w ell a s from s t r i c t l y f in a n c ia l p o in t o f view, i t would probably be b e s t tinder e x is tin g c o n d itio n s to re q u ire th e s e r ia l- ty p e is s u e because o f th e mismana gement o f school funds in th e p a s t and th e low n e t g ain fo r th e school through sinking-fund investm ents. The Wyoming C o n s titu tio n l i m i t s th e amount o f bonds which a school d i s t r i c t may have o u tstan d in g to 6 per cen t o f th e asse sse d v a lu a tio n o f

•^Wyoming Compiled S t a tu t e s . 19A5. Chap. 20, A rt. 12, Sec. 1202, p . 223. 37 -"Donald D avis, "Legal Requirem ents in School Indebtedness and Pro­ posed L e g is la tio n ," American School Board J o u rn a l. 96:31, February, 1938. LIBRARY □ F THE

UNIVERSITY OF WYOMING LARAMIE

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34 th e school d i s t r i c t , based on th e l a s t g en eral assessm en t. 3 8

In 1941,

among th e 25 s t a t e s which lim ite d school in debtedness by c o n s titu tio n a l p ro v is io n s, th e average d eb t l i m i t was 7 p er cent of th e a sse sse d v a lu a t i o n . 39

The same study which re p o rte d t h i s average d e b t lim it a tio n ,

re p o rte d t h a t in term s o f t r u e v a lu a tio n th e l i m i t was reduced to 2 .9 p er c e n t, and Wyoming’ s a sse ssed v a lu a tio n was sa id to be only .56 per cen t o f tru e v a lu a tio n . The Wyoming S ta tu te s l im it th e term of th e o r ig in a l bond iss u e fo r school b u ild in g purposes to 25 y e a r s h o w e v e r , on th e refu n d in g issu e th e term o f th e bonds may be 30 y e a r s . ^

Allowance i s th u s made f o r

is s u e s to be f lo a te d f o r a t o t a l o f 55 y e a r s . tim e t h a t w ill s a t i s f y a l l bondis s u e s .

There i s no one le n g th o f

The f a c to r s

found in th e b u ild ­

in g survey diould be th e d eterm ining f a c to r s a s to th e p erio d o f tim e o v er which to r e t i r e th e is s u e .

As to th o se f a c to r s which have a b e a r­

in g on th e le n g th o f term , Mort and R eusser concluded: The t o t a l le n g th o f a term f o r which a bond is s u e should be f lo a te d w ill depend on a number o f c o n d itio n s th e most im portant o f which a r e th e ty p e o f b u ild in g c o n stru c te d , th e amount of money a v a ila b le an n u a lly f o r school b u ild in g purposes, and th e p o p u latio n tre n d of th e school d i s t r i c t . R e la tiv e to th e ty p e o f c o n s tru c tio n i t may be urged th e o r e tic a lly th a t i f th e l i f e o f a b u ild in g i s estim ated c o n se rv a tiv e ly a t 50 y e a rs, th e r e i s no o b je c t to spread in g th e payment over th a t p e rio d . . . .

3^hmTnin140,000.00 Carbon

T o ta l I n te r e s t

#141,218.00 96,510.00

91

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R eproduced with perm ission of the copyright owner. Further reproduction prohibited without permission.

92 Table XXI T o ta l P r in c ip a l and I n te r e s t on A ll Is s u e s O ther Than Refunding, 1930-194-9

County

Albany

Big Horn

Carbon

L incoln

Year

O rig in a l P rin c ip a l

I n te r e s t

1935 1936 1937 1938

$ 75,000 265,000 50,000 250,000

I 30,000.00 133,125.00 18,150.00 89,375.00

1930 1933 19341936 1938 1939 1940 1945 1946 1947 1948 1949 1950

1936 1940 1941 1946 1948

1938 1948

3,500 12,000 64,500 139.000 46,700 14,000 95,600 57.000 122.000 86.000 40,000 370,000 35,000

13,000 11,000 15,000 90,000 678,000

45,000 100,000

T o tal P r in c ip a l

T o tal I n te r e s t

$640,000.00

#270,650.00

#1,085,300.00

$224,071.10

1807,000.00

$151,665.33

#145,000.00

#28,649.30

437.50 4.590.00 37,940.00 31.662.50 17,722.60 5.175.00 27.979.50 5,112.50 16.876.50 10.402.50 4.510.00 52.402.50 9.300.00

1.940.00 1 .350.00 3.300.00 7.210.00 137,865.33

6,187.50 22,461.80

R eproduced with perm ission of the copyright owner. Further reproduction prohibited without permission.

93 Table XXI, Continued

County Year

Sweet­ w ater

1931 1937 1939 1940 1941 1947 1950

S u b le tte 1937 1939 1945 1943

Teton

U inta

T o ta ls

1933

1934 1936 1937

O rig in a l P rin c ip a l

I n te r e s t

1350,000 2,500 21,000 65,000 125,000 250,000 80,000

$120,375.00 300.00 6,506.81 7,200.00 17,512.50 29.900.00 10.380.00

72,500 3,000 32,000 7,500

15,000

55.000 20.000 31,000

T o tal P rin c ip a l

T o tal I n te r e s t

$893,500.00

$192,174.31

$182,500.00

#42,664.09

$15,000.00

$5,700.00

$107,000.00

$47,919.83

$3,875,300.00

$603,473.96

31,381.33 799.20 9,918.56 565.00

5,700.00

23,199.00 8,533.33 16,187.50

R eproduced with perm ission of the copyright owner. Further reproduction prohibited without permission.

94

T able XXII Comparison o f T o ta l P rin c ip a l And I n te r e s t in Each County, 1930-1949

P rin c ip a l

I n te r e s t

Per Cent I n te r e s t of P rin c ip a l

865,000.00

$553,744.33

64.1

1 ,225,300.00

331,744.30

27.2

Carbon

882,000.00

204,943.33

23.4

L incoln

275,000.00

125,159.30

45.5

S u b le tte

182,500.00

42,664.09

2 3.4

1,101,500.00

501,147.81

45.6

Teton

55,000.00

50,700.00

92.1

U inta

168,000.00

96,827.33

57.6

County

Albany Big Horn

Sweetwater

#

R eproduced with perm ission of the copyright owner. Further reproduction prohibited without permission.