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VALEDICTORY ADDRESS.

including, besides the above-named works of large construction, all payments for extension and maintenance of the works to January 31, 1894, was $32,121,785.09, and the payments for interest amounted to $24,154,688.96; making a total of $56,276,474.05. The receipts or income of the water-works. (including charges for hydrants and public buildings) have been $34,896,724.18, and from other miscellaneous sources $1,763,939.71; making a total of $36,660,663.89. The difference between the total receipts and the total payments is $19,615,810.16, and represents the net cost of the works on January 31, 1894. Of the total cost of the works ($56,276,474.05), $21,449,420.45 was derived from loans, $33,068,041.69 from water revenue (that is, water rates, premiums on loans, etc.); and $1,759,011.91 from taxes.

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Upon the creation of the Board of Commissioners of Sinking-Funds in 1871, the sum of $1,100,000 was set aside from the funds turned over by the Committee on the Reduction of Debt, and apportioned to the sinking-fund created for the payment of the Cochituate water-debt. All the moneys in the hands of the Committee on Reduction of Debt had been raised by taxes, and this sum of $1,100,000 was

1 The expression "net cost of a municipal water-works is commonly understood to be the difference between the total expenditures on account of the undertaking, including the interest on loans issued, if any, for the purpose, and the total receipts derived from the operation of the works, the sale of surplus land, old material, premium on loans, etc. An attempt was made by the Water Board about twenty years ago to reduce the net cost of the Cochituate Water-Works by the sum of $1,352,000. This was the amount claimed by the Water Board as that portion of the money in the hands of the committee for the reduction of the debt which should have been credited to the Cochituate water loans; and for several years the Water Board deducted this amount from the real net cost for the purpose of making it appear that the total cost of the water-works was so much less than was really the case. In this undertaking they followed a course similar to that pursued by the Directors of the East Boston ferries in their trial balance statement (sce p. 157). The City Auditor, however, very properly objected to this method of ascertaining the cost of the water-works, as the sum in question was not derived from the income of the works, but had been contributed from the tax levy; but he was overruled, and for some years, between 1871 and 1878, the Auditor's annual reports contained a statement of the net cost of the Cochituate Water-Works with this credit of $1,352,000 deducted. The views of the Auditor, however, finally triumphed, and in 1879 this ingenious fiction disappeared for good.

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therefore a contribution from the general taxpayers for the reduction of the water debt. Since 1871 over three millions and a half have been added to the Cochituate water sinkingfund from the income of the water-works, and nearly a million more from taxes and city income. The present annual additions to the Cochituate water sinking-fund amount to about $300,000 from water rates, $300,000 from interest on investments, and $50,000 from interest on bank deposits, premium on loans, etc., or about $650,000 per annum.

The total amount of water loans issued to January 31, 1894, was $21,563,711.11, of which there was on hand on that date an unexpeuded cash balance of $114,272.73, and the sum of $17.93 (being the unexpended balance of the loans for the construction of the Chestnut-hill reservoir) had been paid into the sinking-fund; leaving the total amount derived from loan and expended on the water-works to January 31, 1894, at the sum already mentioned, -$21,449,420.45.

As water loans have not in recent years been issued to the full extent of the additions to the sinking-funds from water rates and interest on investments, and as large additions to the sinking-fund were made from the general tax levy prior to 1877, the net debt of the Cochituate Water-Works to-day is much less than the amount borrowed for the construction of the water-works, being only $9,443,032.90 on December. 31, 1894.

The Cochituate water debt, which was about $5,000,000 upon the completion of the original water-works in 1851, was gradually reduced to less than $3,000,000 in 1865; after which time it gradually rose, until between 1886 and 1891 it averaged about ten and a quarter millions. During the past four years there has been a reduction, due principally to the abandonment of the practice of borrowing money for annual extensions.

Although the debt is now decreasing, and will continue to decrease unless more than $600,000 or $700,000 is borrowed annually for construction,1 it does not follow that it is not very much more than it ought to be. In the first place, money has

1 Or rates are reduced.

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been borrowed for purposes the cost of which in any properly regulated municipal or private water-works would have been defrayed from income rather than from the proceeds of bonds.

The original cost of the works, with interest during the construction period and for two years thereafter, was rightly met by loan, according to the terms of the Act of 1846; and for these purposes scrip to the amount of $5,430,711.11 was issued. Further loans were properly authorized and issued as follows: for the construction of Chestnut-hill reservoir, $2,449,982.07; for new mains from the Brookline and Chestnut-hill reservoirs into the city, $654,991.83; for additional supply, $7,334,687.56; for the high-service works, $1,103,144.69; for the shops on Albany street, $60,000; and for extensions in the annexed districts, $2,085,000; making a total of $19,118,517.26 procured by loan, and expended for lands, water rights, and construction between 1846 and 1894.

These loans were all for purposes for which stock or bonds would be issued by a private corporation, and for which a municipal water-works would issue loans; but in addition to this sum, which represents the actual amount of money borrowed for real estate and construction, there has been borrowed $215,175.92 for maintenance and "general expenses," $330,000 for meters, and $1,900,000 for ordinary annual extensions of mains: a total of $2,445,175.92, representing items of expenditure which on any correct or customary business theory should have been charged to income and not met by loan.

No one will question that the loans for current expenses should have been avoided, and few will doubt the propriety of charging the cost of meters, stopcocks, and similar articles to income rather than to capital; but the question as to the extension of mains is more difficult, as many corporations issue stock for such purposes. That under ordinary circumstances, however, the cost of annual extensions would not be capitalized, at least in the form of bonds, by a gas or water works is abundantly shown by the annual reports of the Board of Gas and Electric Light Commissioners, the only official publication which attempts to give the exact financial

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operations of semi-public corporations. It is also to be noted that in the case of the Mystic Water-Works the city of Boston itself has pursued the business-like policy of charging all expenses of this sort to income;1 and in almost every well-managed municipal water-works the same practice is followed. If the income of a municipal water-works is not sufcient to cover the cost of ordinary extensions, the deficiency had better be met by taxation than by borrowing money.

Prior to 1885 it had been the custom of the Boston Water Board and its predecessors to defray the cost of these extensions from the water rates or from taxes; but between that year and 1892 loans were issued for this purpose aggregating, as already stated, $1,900,000 in amount. The practice was stopped in 1892; extra activity in the office of the Water Registrar resulted in a considerable increase of income without an increase of rates; and it was thus found possible to pay for all necessary extensions out of the income. The result has been a reduction in the Cochituate water debt of nearly a million dollars and the establishment of the works upon a strictly self-supporting basis.2

1 The result has been that in the case of the Mystic Water-Works the debt has been paid off and the works are now yielding a clear profit above the cost of maintenance and extensions; but it should be borne in mind that the task of supplying the city of Boston with an adequate supply of water is a relatively very much more difficult and expensive undertaking than the exploitation of Mystic Lake for the towns dependent upon it.

2 It should be stated that the borrowing of money for the extension of mains was justified by an opinion of the Corporation Counsel (sce Loc. 12 of 1885). With this opinion I was never able to agree; but believing that the matter was not free from doubt and that the abandonment of the unbusiness-like practice of borrowing money for current extensions would be criticised in some quarters as long as any one could maintain that the law necessitated such a course, I applied to the Legislature of 1892, and an act was procured which justified the Water Board in returnSt. 1892, ch. 213, also permitted ing to the correct practices obtaining prior to 1885. the Water Board to consolidate the financial operations of the Cochituate and Mystic Water-Works, and between the two the surplus revenues of the year above maintenance and interest have been sufficient to pay for all extensions of mains and to mect the annual requirements for the sinking-funds for the entire water debt. The Cochituate Water-Works have not yet reached this point, as the surplus of the Cochituate revenues above the cost of maintenance, interest, and extension of mains has not yet been quite equal to the amount necessary to meet the sinking-fund requirements; but it should be during the coming year. In any event, the two systems together yield a revenue more than sufficient to cover all expenditures that on any theory should be charged to income; that is, they constitute together a self-supporting system and before the expiration of another year the Cochituate Water-Works should be selfsupporting in themselves, while the Mystic Water-Works should yield a clear profit of between $100,000 and $150,000 a year.

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The net Cochituate water debt and the net cost of the works would also be considerably less to-day than they are, if it had not been for continual and injudicious reductions in rates. The original tariff for dwelling-houses established in 1849 was raised in 1850, and again in 1855, while the rates for meters, introduced in 1859, were raised in 1865; and from that time until 1877 there was practically no change in the rates either for dwelling-houses or meters. Up to that year there had been a conscientious effort on the part of the Cochituate Water Board and the City Council to make the water-works self-supporting, and to reduce the debt with a view to its final extinguishment, as was contemplated by the provisions of the Act of 1846, and by those who were responsible for the establishment of the water-works but about 1877 the theory began to prevail that the chief aim of the administration of the water-works should be to reduce the rates, rather than to pay off the debt. The "sacred duty of providing for the debt "2 was lost sight of; some encouragement was even given to the idea that the water should be made entirely free-that is to say, that the whole cost of maintaining the works should be transferred from the water takers to the general taxpayers of the city; and a reduction of 163 per cent. was made that year in the rates for consumption by meter. In 1879 a further reduction of 20 per cent. was made in the meter rates, and in 1886 the meter rates were again reduced by over 10 per

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1 Since 1854 charges have been made to the city for water used in the public buildings, and since 1870 a special charge has been made for fire hydrants.

2 Sce remarks of Nathan Hale on the introduction of water into the city in 1848. 3 The ostensible cause of the reduction of 1879 was the assumed illegality of paying any part of the water income for interest on the difference between the cost of the works and the outstanding water debt. Inasmuch as a considerable part of the cost of the water-works had been met by general taxes and not by water loans or rates, it had been the practice of the Treasurer since 1858 to charge the water-works interest on the amount thus contributed, which was described as the unfunded water debt. The City Government of 1879 felt that this practice should be discontinued (see Mayor's message of April 21); and there was much to commend this view of the case if the money thus released was to be covered into the sinking-fund for the funded Cochituate water debt, as such a course would have resulted in a reduction of the debt. As a matter of fact, however, the remission of the obligation to pay interest on the funded water debt was simply used as an excuse for the reduction in meter rates made that year and in 1879, and thus under the pretence of correcting a book-keeping error, the ability of the water-works to pay off the debt was seriously impaired.

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