been indicated, have been used in Massachusetts. Two of them permit flexibility in the distribution of the burden, enabling the "peak of the load" to be placed either in the earlier or later or middle years of the loan period as may be desired. It has occasionally been urged that this flexibility is desirable. In the case of some improvements (such as a public building) the maximum usefulness comes in the early years; in others (such as a public park) it may not be reached for twenty years or more; in still others (such as land acquired for streets) the degree of usefulness may be uniform. The burden, it has been argued, should be levied in proportion to the advantage derived. (e) Attractiveness to Investors. Opinions differ as to whether sinking fund bonds or serial bonds are more attractive to investors. Neither seem to have a marked advantage under all circumstances. So far as the experience of Massachusetts goes there has appeared to be no distinct preference for one over the other, although serials seem at present to be slightly the more in favor with investors. VIII. THE CONVERSION OF SINKING FUND BONDS INTO SERIAL BONDS. Since the years 1912-13, when the serial plan of borrowing was made mandatory for all future borrowings both by the Commonwealth of Massachusetts and by its municipalities, there have been proposals for the conversion of all outstanding sinking fund bonds by the issue of serial bonds. The refunding of the Commonwealth's sinking fund bonds in this way was recommended to the Governor by the Treasurer and ReceiverGeneral in 1914, and this recommendation was transmitted by Governor Walsh to the Legislature on July 1 of that year. The Legislature, by Chapter 157 of the Resolves of 1914, referred the matter to the Commission on Economy and Efficiency for examination and report. In compliance with this resolve the Commission on Economy and Efficiency submitted to the General Court, on January 15, 1915, a report (House Document No. 1650) which covered the merits of the question fully and concluded with the following expression of opinion: In conclusion, the Commission is of the opinion that the refinancing of the sinking fund debt by the issuance of serial bonds presents practical difficulties which could not be overcome with benefit or economy to the State unless it is desirable to burden the years of the immediate future with a large increase in the State tax; and we are further of the opinion that even then the accomplishment of beneficial results is problematical. 1 The New York Constitutional Convention of 1915, however, regarded the advantages of conversion so highly that it unanimously adopted the following proposal of amendment: 2 The Legislature may also by general laws provide means and authority whereby the outstanding bonds of the State, for which sinking funds are provided, may be exchanged at par for cancellation, for serial bonds of the form authorized under section four of this article, upon such terms and conditions as to interest or otherwise as it may in its discretion authorize or determine, except that the debt as thus refunded shall finally mature no later and at no greater comparative cost to the State than the original debt; the determination of the Legislature as to such comparative cost shall be conclusive. No further contributions to the respective sinking funds shall be made on account of bonds so exchanged and the proportion of any such sinking fund which the amount of the bonds so exchanged shall bear to the amount of the bonds outstanding of the same issue may be appropriated, as required, for the payment of the substituted serial bonds.3 IX. SUMMARY. A summary of the more important points in the foregoing discussion may be of service: 1. Only one State (Arkansas) has provided in its constitution for the compulsory use of the serial plan by any public authority, and in this case the application is to municipal bond issues only. 2. The New York Constitutional Convention of 1915 unanimously adopted a much wider provision, covering State as well as municipal bond issues, but it did not become operative 1 A criticism of this conclusion may be found in A Review of the Report (House Doc. No. 1659), dated January 15, 1915, of the Commission on Economy and Efficiency on Refunding by Serial Bonds the Outstanding Sinking Fund Bonds of the State of Massachusetts, by Alfred D. Chandler, of the Massachusetts Bar. 2 Printed ante, 159. Proposed Constitution of New York, Article IX, Section 5. because the people rejected the new draft of a constitution in which this provision was incorporated. 3. The use of the serial plan of borrowing is by statute made mandatory in Massachusetts both for State and municipal bond issues, with a few exceptions. 4. In the case of municipal borrowing the law rigidly circumscribes the discretion of the municipal authorities as to the form of serial issue which may be used; in the case of State borrowing this is left to the discretion of the Treasurer and Receiver-General, with the approval of the Governor and Council. 5. The serial plan has been found by a Joint Special Committee of the Massachusetts Legislature to be distinctly preferable to the sinking fund plan of borrowing. 6. The conversion of the Commonwealth's sinking fund bonds, at present outstanding, into serial bonds, was adversely reported upon by the Commission on Economy and Efficiency two years ago. 7. The New York Constitutional Convention of 1915 unanimously favored an amendment permitting the Legislature to provide for conversion in that State by general law. BIBLIOGRAPHY. Boston Finance Commission. Reports, Vol. II, 1909. Boston, 1909. Chandler, Alfred D. "Amortization." American Economic Review, iii, pp. 875-893 (December, 1913). A Review of the Report . . . of the Commission on Economy and Massachusetts. Bureau of Statistics. Report of a special investigation relative to the sinking funds and serial loans of the cities and towns of the Commonwealth, by the Director of the Bureau of Statistics. March 5, 1913. Boston, 1913. House Document No. 2162. Outstanding Indebtedness of Certain Cities and Towns of Massachu- Report of a Special Investigation relative to the Indebtedness of the Statistics of Municipal Finances. Published annually. Massachusetts. Joint Special Committee on Municipal Finance. January, 1913. Boston, 1913. House Document No. 1803. Commission on Economy and Efficiency. Report on proposed conversion of state sinking fund bonds by issue of serial bonds. Boston, 1915. House Document No. 1650. Massachusetts. Acts and Resolves, 1913. Chapter 719. An act relative to municipal indebtedness. Boston, 1913. Matthews, Nathan. Municipal Charters, Cambridge, 1914, especially pp. 62-67. New York State. Constitutional Convention. Documents Nos. 1-54. Albany, 1915. (No. 23, Report of the Committee on State Finances and Expenditures on the several proposed amendments in relation to debts contracted by the State.) Committee for the Adoption of the Constitution. "Saving the State's Money," by Henry L. Stimson. Albany, 1915. Publication |