Chapter X Financing Highways and Highway Transportation Lines
Highway financing may be divided for consideration into two parts, namely: financing the road and financing the operation of the road. Both are necessary if goods are to be transported from where they are plentiful, grown, manufactured, or stored, to where they are needed for sale, consumption or transshipment. Money is required for both parts and it must be obtained in some legal manner.
As has been shown roads developed from mere trails that originally were paths along which by common consent, force, or otherwise the privilege of passing was gained. This, when ownership in land was recognized, became an easement. After the development of civil governments the right to traverse and transport goods over such roadways, that is, the easement, was vouchsafed to the inhabitants and protected by laws. In England the right of way over another’s land became known as the king’s highway, as all public property was held and measures taken in the name of the king. In the United States it is known simply as a public highway. The highway is in reality the right of passage, not the beaten track, for in both England and the United States the laws recognize the privilege the traveler has when for any reason the road becomes blocked or obstructed of taking to the fields and making another track. Equity courts may grant damages for such usage of private land by the public but no court will attempt to prevent it; if necessary they will, however, by writ of mandamus command road officers to repair the established roads so as to make them passable. In England the law allowed the traveler to turn into the adjacent field, whether cultivated or not, whenever the track became worn or rutted. In order to keep the used way within due bounds and at the same time maintain it in a passable condition the freeholders, perhaps at first voluntarily then by force of laws, worked the roads once or twice a year. By doing this they saved their lands and crops from being trampled down. It has also been shown how Edward I took up the question of improving the highways as a police measure in order that it might be safe for man and goods to pass along the road without being attacked from ambush by robbers.
Such robberies have taken place in the development of every land, and those who have made a profession of it are variously styled highwaymen, bandits, brigands, and so on. Even to the present day, as has been shown in a preceding chapter, highway robbery still exists, although the profession of highwayman no longer commands the respect of reputable society as was the case during the time of Robin Hood, and Claude Duval of England, and of the Robber Barons of Germany.
Thus the public good demanded that the time of the freeholders and the money of the government be expended upon the highways. Of late years in the United States the “working out” of road or poll taxes has been practically abolished and the taxes are collected in money which is expended in road construction and maintenance by persons regularly delegated for that purpose. With the increased use and the building of better types of roadways more and more money is demanded so that the financing of highway improvements has become a matter of vast importance. The money must come from either private sources or from the public. If from the public it results directly from taxation or is borrowed and the obligations paid off by taxation.
Private Financing—A few persons of wealth have built roads as a benefaction to the public. Perhaps one of the most ambitious projects of this sort is the DuPont Road, which is located through the state of Delaware from north to south. The intention of the DuPont family is to make this road eventually one of the finest in the world. It has been very carefully laid out and constructed. Later it is to be widened and beautified. Some $3,000,000 have already been expended, and it is contemplated to spend $1,500,000 more. It might be well if more men of wealth would commemorate their names by constructing and endowing roads.
In spaces about wharfs and depots, although on privately owned ground and privately constructed, the pavement is often used generally as a highway. Such places are of course primarily for the convenience of the steamship or railway companies and they are maintained at their own expense. However, all such expense forms a part of the cost of operation and no doubt is charged to the patrons in the overhead, or it is intended to be a means of advertising in the hope that it will increase business.
In timbered and rough mountainous countries, roads have frequently been built and maintained by the companies interested in lumbering, mining, or other enterprises therein, and thrown open to the general use of the public. Here the companies figure that the benefit to be derived by them more than balances the expense. Furthermore, the use of them by the public, while a minor consideration as far as the road itself is concerned, is a means of maintaining a friendly feeling with the inhabitants.
Turnpike or toll roads, as has already been pointed out, were very extensively built in the days preceding the advent of the steam railway. These were built with money raised by the ordinary methods for financing industrial enterprises. A good many thousands of miles of such roads were chartered and constructed by private capital amounting to millions of dollars before the steel tracks put them out of business. Only a few now remain in Pennsylvania and Virginia with now and then scattered short stretches of roadway, and bridges over larger streams elsewhere, and ere long they, too, will be taken over by the states and become a part of the great public highway. As late as 1915 a private toll road in Tuolumne County, California, operated by a mining company was purchased by the state and nation, a portion of it being within the Yosemite National Park, and made a part of the California state system. The people will never be content to go back to the inconvenience of being stopped by a turnpike every 4 or 5 miles to pay a toll amounting in many cases from 1 to 2 cents per ton-mile, when the same amount of money in the form of licenses and taxes will keep up magnificent systems of public “free” highways.
Public Financing—Every civic government has its methods for the collection of revenue to pay its necessary expenses. One of the easiest things theoretically to do, then, is to collect by a tax on the property of the district—state, county, township—sufficient money to meet expenses, including the building and maintenance of roads, from the property holders in proportion to their wealth and turn it over to the proper officers for expenditure. When roads were yet simple things, before they had become elaborate and complicated structures, that might have been done. Practically, however, even then the working of the roads was a farce; men sat around, told stories, retailed the neighborhood gossip and smoked their pipes or whittled sticks, while the horses hitched to the scraper or plow stood limp with one hip lower than the other, eyes half shut lazily swishing at the flies with their long tails. Soon the necessary hours were passed, their poll or road tax had been “worked out.” The roadway was left in an almost impassable condition to be gradually worn smooth during the intervening six months until it came time again to work the roads. To most of those old timers the working of the road was a necessary evil and done only because the law required it. When occasionally a road supervisor insisted on a full day’s work for a day’s credit he was a skinflint and at the next election lost his job.
The tremendous amount of money necessary to construct present types of roads must, in the long run, be obtained from the citizens through some medium of taxation. A tax is a compulsory contribution levied upon persons, property, business, occupations, privileges, or enjoyment of the people for the support of government or governmental functions. When levied upon persons it is usually called a poll or head tax; when upon property, a property tax; when upon business it may be a capital tax, sales tax or an income tax; when upon occupations, an occupation tax; when upon privileges, a license; and when upon enjoyment, a pleasure tax. A good many of them may be lumped together under the name of revenue taxes. Some are collected personally by a specified officer of the government, while others are collected indirectly by the sale of stamps which are attached to the article or transaction taxed.
Taxes may also be classified as direct, indirect and special, all of which are of great importance to the highway.
Direct Taxes—Direct taxes are levied directly upon property or persons. State laws usually prescribe that general property taxes shall be levied uniformly over the assessed values of the district concerned. A poll tax is levied on all persons of a particular age or class, as all able-bodied males between the ages of twenty-one and fifty years. An income tax is levied according to some prescribed rule on the annual incomes of persons and corporations. An income tax is really a tax on business, either present or past.
In either case, whether the levy is on his poll, upon the assessed valuation of his property, or upon his declared income, the taxpayer contributes, theoretically at least, in direct proportion to his ability to pay. The amount of the tax is definitely ascertained some little time in advance of payment and is collected directly by an officer of government.
The levying of labor or poll taxes on persons living within a particular road district easily expanded to the levying of property taxes to care for the local roads. However, as the cost of road building and maintenance increased the fronting or contiguous property could not stand the entire burden, the zone of taxation was widened to include larger areas, the township, the county or the state, depending on the importance of the highway.
Indirect Taxes—Indirect taxes are those not levied upon the various persons or the property of the district, but are placed upon some article of consumption or some article of manufacture, upon imports and exports, or some privilege or pleasure. The government does not look to each individual for its money, but to the seller or manufacturer or importer of the article taxed, or the licensee, or the operator of the theater or other pleasure resort. The amount of the tax is added to the price at which the article is sold or to the fee charged so that it is at last borne by the ultimate consumer, in proportion to his consumption of the article taxed, or the privilege enjoyed.
Federal aid moneys all come from indirect taxes, for the Constitution forbids the national government to levy direct taxes.
In Alaska 65 per cent. of the “Alaska Fund,” a fund derived from all returns from liquor, occupation or trade licenses obtained outside incorporated towns, must by Congressional law of 1905-1906; be spent in Alaska for roads, trails, and bridges.
License fees on motor cars and sales taxes on gasoline belong to the class of indirect taxes, and are attempts to charge the user of the road in proportion to the wear and tear produced by him or his consumption of it. If the motor car is an express truck, a bus, or a taxicab the tax is passed on to the patron, and this patron charges it to the cost of living and attempts to pass it on to his employer through increased wages or those who do business with him. It is finally paid for by that visionary personage the ultimate consumer—everybody.
Special Taxes—Special taxes are those levied upon property for a particular improvement that is demanded by public interest. They are not uniform but must be levied in proportion to the benefits accruing to the property from the improvement. This class of taxes is very popular for financing the building of roads and the paving of streets as well as other public construction. The area adjacent to the road or pavement for a certain specified distance back, or possibly, halfway to the next thoroughfare, is assessed for the improvement and in road work is technically known as “fronting property.” Each piece of fronting property is required to pay toward the whole cost of improvement an amount proportional to the benefits derived from the improvement.
These benefits evidently decrease as the distance from the improvement increases. They may not always vary in the same ratio, but appraisers will usually follow some definite rule and deviate from it only in extreme cases and as local conditions demand. That they should not decrease directly as the distance but in some geometrical ratio, most engineers agree. Law courts have frequently upheld assessments made upon some such basis.
For the purpose of initiating an improvement by petition it is customary to adopt a fixed scale for the measure of the benefits, based upon distance, that will probably be derived from the improvement. Some legislative bodies have enacted definite rules for evaluating “influence” in petitioning. Generally the rule is based upon some mathematical variation. For example that the assessed value or influence of property of uniform width extending back from the roadway shall vary as the square root of the maximum distance back. In the figure on page 313, a lot of one-unit area fronting the street is given a value of 31.62. This is from the mathematical formula y2 = 1000x where y represents the assessed value or influence in petitioning, and x, the distance back, considering the value of y = 100 for x = 10.
To draw the curve mark off on a straight line ten equal distances; at the mid-point of these distances or units erect perpendiculars. From the formula calculate values for y as shown in the table; lay these off on the verticals and plot the curve through their extremities. To clarify this some, suppose that upon the center of the first space, there being one unit area or lot here, there is stacked up the value of the assessed benefits 32 (31.62) silver dollars. On the next space, since there are two lots extending back from the street, the stack would contain 45 (44.72) silver dollars—continue this for each space and for the number of lots extending back. A curved line passing through the tops of the stacks representing the assessed values will be the influence curve plotted.
| x | y2 | y |
|---|---|---|
| 1 | 1,000 | 31.62 |
| 2 | 2,000 | 44.72 |
| 3 | 3,000 | 54.77 |
| 4 | 4,000 | 63.25 |
| 5 | 5,000 | 70.71 |
| 6 | 6,000 | 77.46 |
| 7 | 7,000 | 83.67 |
| 8 | 8,000 | 89.44 |
| 9 | 9,000 | 94.87 |
| 10 | 10,000 | 100.00 |
For the purpose of initiating an improvement the unit in which the prospective benefits are to be measured is usually adopted by the governing or assessing authorities. Dollars will not do because the cost will not be known until after the improvement has been finished. In the case of roads and streets the unit quite generally used is the “front-foot.” The number of front-feet in any paving district will be the same as the number of abutting feet along the street to be improved. A different definition for “front-foot” is given on page 318. The petitioning power or influence of the several properties constituting the whole frontage is proportional to the number of front-feet assigned to each property, and these are assigned according to the adopted rule which is supposed more or less closely to measure the benefits to be derived from the improvement.
When it comes to paying for the improvement the total cost up to the time of payment, including all charges against the district of whatsoever character, is divided by the number of front-feet giving the cost per front-foot, from which may readily be determined the cost to be assessed to each property according to the number of front-feet assigned to it.
To illustrate this more concretely, consider a road one mile long. Its abutting length is 2 miles, one on each side, or 10,560 feet. The total number of units of influence in the whole assessed area, and the number of units of assessed benefits, is 10,560 front-feet. The number of these units assigned or assessed to a particular plot of land is technically called its “frontage.” Since all land for a specified distance from the roadway must share in the benefits and in the cost, therefore, a piece of property may have frontage even though it does not touch the street or roadway to be improved.
In order to facilitate computation, more or less arbitrary variations are made from the theoretical curve of assessment thought to be ideal. Each infinitesimal portion of land bears a different assessment value according to its position in relation to the improvement. It would be impracticable to divide the land into an infinite number of strips of infinitesimal width and calculate the assessment for each. This could be done by mathematical analysis if all the boundary lines were straight lines and mathematical curves, but the work would be even then too laborious to pay. It is customary to divide the assessed territory along each side of the roadway into zones with edges parallel to the road, and to each zone is given a weight or proportional part of all the assessed value. The weights are obtained from the mathematical curve and are given values corresponding approximately with theoretical calculations.
Zone Weights—To determine the proper zone weights the influence curve is plotted as in figure on page 319. The base line, AB, is divided into as many parts as it is desired to have zones; from the mid-point of each part a perpendicular to the base line is erected to meet the curve, shown in the table, as mid-ordinates. These are each multiplied by 100 and divided by the longest, in the case of five zones, 94.85, to get them into percentages of the whole. These are now adjusted to near numbers for easy multiplication. For example, to multiply by 331⁄3 add two ciphers and divide by 3; to multiply by 25 add two ciphers and divide by 4; and so on.
Five-zone Table
| Zone | Mid- ordinate | Per- centage | Weight | Adjusted Weight | Sum | ||
|---|---|---|---|---|---|---|---|
| 1 | 31.62 | 33.3 | 33.3 | 33 | 1⁄3 | 33 | 1⁄3 |
| 2 | 54.77 | 57.7 | 24.4 | 25 | 58 | 1⁄3 | |
| 3 | 70.71 | 74.6 | 18.9 | 16 | 2⁄3 | 75 | |
| 4 | 83.67 | 88.5 | 13.9 | 15 | 90 | ||
| 5 | 94.87 | 100.0 | 11.5 | 10 | 100 | ||
To get weights for six zones take the mid-ordinates at 81⁄3, 25, 412⁄3, 581⁄3, 75, and 912⁄3, as follows:
| Zone | Mid- ordinate | Per- centage | Weight | Adjusted Weight | Sum | Another Adjusted Weight | Sum | ||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | 28.86 | 31 | 31 | 30 | 30 | 33 | 1⁄3 | 33 | 1⁄2 | ||
| 2 | 50.00 | 52 | 21 | 20 | 50 | 20 | 53 | 1⁄3 | |||
| 3 | 64.45 | 67 | 15 | 15 | 65 | 16 | 2⁄3 | 70 | |||
| 4 | 76.70 | 80 | 13 | 12 | 1⁄2 | 77 | 1⁄2 | 10 | 80 | ||
| 5 | 87.02 | 91 | 11 | 12 | 1⁄2 | 90 | 10 | 90 | |||
| 6 | 95.73 | 100 | 9 | 10 | 100 | 10 | 100 | ||||
To Calculate the Frontage—As has already been stated, in some states in order to initiate a road improvement to be paid for by special assessment a petition for the same signed by the owners of a majority of the frontage is necessary. To determine the frontage for this petition general rules are laid down by proper authority or laws enacted, stating the necessary procedure and the weights allowed for calculating frontage based upon distance from the roadway to be improved. In one state the land up to a distance of 2 miles back on each side of the roadway may be formed into an improvement district which constitutes the fronting territory or frontage. The frontage on each side of the roadway is divided into four zones equal in width. The first zone, the one nearest the road, has a weight of 50, or it may be said to contain 50 per cent. of the total frontage; the second zone has a weight of 25, or contains 25 per cent. of the frontage; the third, 15 per cent.; and the fourth, 10 per cent. Along a mile of the road there are, of course, two miles or 10,560 front-feet frontage. This 10,560 front-feet is not considered to be uniformly distributed over the entire 4 square miles (assuming the district 2 miles each side the road) of assessed territory abutting the mile of roadway. Nor to be decreased according to the mathematical laws stated above. But the distribution is by arbitrary rule laid down by legislative authority. In this particular case, assuming a straight roadway and equal zones, the first one will contain 50 per cent. of 10,560 = 5280 front feet. Since the actual area of the zone is 1 square mile = 640 acres, there are 5280 ÷ 640 = 81⁄4 front-feet per acre in this zone. The table will show similar results for each of the four zones:
| Zone | Weight | Front feet per mile | Front-feet for varying acreages | |||||
|---|---|---|---|---|---|---|---|---|
| 1 acre | 10 acres | 20 acres | 40 acres | 80 acres | 160 acres | |||
| 1 | 50 | 5280 | 8.250 | 82.50 | 165.0 | 330 | 660 | 1320 |
| 2 | 25 | 2640 | 4.125 | 41.25 | 82.5 | 165 | 330 | 660 |
| 3 | 15 | 1584 | 2.475 | 24.75 | 49.5 | 99 | 198 | 396 |
| 4 | 10 | 1056 | 1.650 | 16.50 | 33.0 | 66 | 132 | 264 |
As an illustration, suppose two taxpayers have farms of exactly the same size, 800 acres each, but placed differently in regard to the road, see figure below. Their influences or petitioning power may be calculated in front-feet from the preceding table thus:
Two farms of the same shape but situated differently with regard to the improved highway have different “petitioning influences” and are assessed differently for improvements. Farm A is in contact with the road for 5280 ft., and has an influence or assessment value of 4158 front-feet. Farm B is in contact 1320 ft. and has an assessment value of 2442 front-feet.
| Zone | Weight | Farm A | Farm B | ||
|---|---|---|---|---|---|
| Acres | Influence Front-Feet | Acres | Influence Front-Feet | ||
| 1 | 50 | 320 | 2640 | 80 | 660 |
| 2 | 25 | 240 | 990 | 160 | 660 |
| 3 | 15 | 160 | 396 | 240 | 594 |
| 4 | 10 | 80 | 132 | 320 | 528 |
| Total | 800 | 4158 | 800 | 2442 | |
| Contact Feet | 5280 | 1320 | |||
Procedure With Unequal Zones or Irregular Lots—Where the zones are not equal in area or the property lines do not intersect the roadway at right angles or the lots are irregular in shape, the method of procedure is not quite so simple, although the principle is the same. While it is customary to make the zones of uniform width this is not absolutely necessary. Likewise the ratio of weights vary with different states and cities. One city uses 331⁄3, 20, 162⁄3, 10, 10, 10 for the weights in its six zones; another uses 331⁄3, 25, 162⁄3, 15 and 10. Neither of these, as shown in the tables on pages 315 and 316 varies materially from the theoretical ratio.
Using the latter of these ratios a small district has been worked out as shown in the figure and table on page 320. Incidentally this also shows a good method of recording lot assessments during the process of computations. The work is readily checked. The sum of the lot areas must equal the sum of the zone areas and that of the whole district. The sums of the weighted areas for the same divisions must balance. The sums of front-feet likewise. Also cross and vertical summations may be made to check.
Second Method of Apportioning Assessments—A second method based upon a different definition has something in its favor. If the front-foot is defined as a lot 1 foot wide measured in the direction of the street extending directly back through all the zones to the limit of the assessed area it will have a weighed area of W1z1 + W2z2 + W3z3... and so on, where W1 represents the weight of the zone, whose width is z1, and W2 the weight of the zone, width z2, etc. If z1 = z2 = z3... etc., as is usually the case the weighted area of 1 front-foot is (W1 + W2 + W3... ) z = Wz = 100z, since W is always = 100. The total number of front-feet in the district, or in any lot, will be the number of weighted feet in the district or in the lot, divided by 100z. In the district represented on p. 320, the number of front-feet is the total frontage, 1,936,000 divided by 4000 = 484; and for each lot the amount shown in the table. The results obtained by the two methods are directly proportional, so that either may be used for making assessments. In fact they are proportional to the weighted areas, so that the weighted areas may be used instead of the front-feet if desired.
Rule for Assessment—To get the assessment for any particular lot divide the total cost of the improvement by the total number of front-feet in the district and multiply the quotient by the number of front-feet in the lot.
| ZONE | WT. | ZONES | LOT 1 | LOT 2 | LOT 3 | LOT 4 | LOT 5 | LOT 6 | LOT 7 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| AREA | WTD. AREA | AREA | WTD. AREA | AREA | WTD. AREA | AREA | WTD. AREA | AREA | WTD. AREA | AREA | WTD. AREA | AREA | WTD. AREA | AREA | WTD. AREA | |||
| 1 | 39 | 1⁄3 | 22,800 | 760,000 | 4800 | 160,000 | 3600 | 120,000 | 2400 | 80,000 | 3000 | 100,000 | 3000 | 100,000 | 6000 | 200,000 | ||
| 2 | 25 | 20,400 | 510,000 | 2400 | 60,000 | 3600 | 90,000 | 2400 | 60,000 | 3000 | 75,000 | 3000 | 75,000 | 6000 | 150,000 | |||
| 3 | 16 | 2⁄3 | 18,000 | 300,000 | 300 | 5,000 | 3300 | 55,000 | 2400 | 40,000 | 3000 | 50,000 | 3000 | 50,000 | 3000 | 50,000 | 3000 | 50,000 |
| 4 | 15 | 15,600 | 234,000 | 1200 | 18,000 | 2400 | 36,000 | 3000 | 45,000 | 3000 | 45,000 | 6000 | 90,000 | |||||
| 5 | 10 | 13,200 | 132,000 | 1200 | 12,000 | 3000 | 30,000 | 3000 | 30,000 | 6000 | 60,000 | |||||||
| Total | 90,000 | 1,936,000 | 7500 | 225,000 | 11700 | 283,000 | 10800 | 228,000 | 15000 | 300,000 | 15000 | 300,000 | 15000 | 400,000 | 15000 | 200,000 | ||
| Front Feet 1st Method600 | 69.73 | 87.71 | 70.66 | 92.97 | 92.97 | 123.97 | 61.99 | |||||||||||
| Front Feet 2nd Method484 | 56.25 | 70.75 | 57.00 | 75.00 | 75.00 | 100.00 | 50.00 | |||||||||||
Chart
First Method
Front-Feet = 600
Weighted Area per front Foot = 1,936,000⁄600 = 32262⁄3
Lot frontage = Weighted area of Lot ÷ 32262⁄3
Second Method
Front Feet = 1,936,000⁄4000 = 484
Frontage of each lot = weighted area of lot ÷ 4000
It should be remembered that the assessment of cost must be in proportion to the benefits to be derived from the improvement. The assessors will therefore have to use sound judgment and modify the mathematical results if deemed wise. As a rule it is best never to deviate, though, unless there are extraordinary good reasons.
Miscellaneous Sources of Revenue—A few years ago much was said relative to the right of a city to take a portion of the earnings of public service corporations as compensation to the public for the use of its streets. Many cities granted franchises under such agreements and until the automobile depleted the earnings of street railways and the general costs of manufacturing gas and electricity went up received considerable revenue from these public utility organizations. While in most cities this went into the general fund money was usually appropriated from that fund for street maintenance and improvement, so indirectly, at least, the roadways profited. In the large cities franchises for the use of the public streets at, above, or beneath the surface are sufficiently valuable to warrant good returns to the public. It seems logical that such money be used for street improvements. Bus and truck lines fall directly under this head, and since they are very largely conducive to the distruction of pavements, it would seem as though they ought to pay for at least a part of this damage. The tax might be graduated according to weight as is now in most states the automobile license tax.
A number of cities are entering the commercial and industrial enterprises such as the sale of water, gas, electricity, ice and coal. While usually these are operated on a low margin so as not to make money there is nevertheless, here, an opportunity to secure necessary funds for public improvements. And if the operation of these enterprises is such that private competitors can make reasonable profits the people will be the gainer by having more available funds for worthy objects. It may not be the proper province of the government to go into gainful enterprises in competition with its own citizens. In fact, public opinion in America has been so one-sided on such questions that wherever private enterprises have been taken over by the states or the nation they have thereafter been conducted free or at the bare cost of operation. The turnpike roads were bought by the states and made part of the free public road system. Cities like Cleveland and San Francisco have handled their street railways at the bare cost of operation. Efforts are being made to make the Panama Canal free to certain classes of commercial shipping. Government land reclamation by irrigation and drainage has been made so that it could be paid for by the settlers in small amounts, running through long periods of time. But notwithstanding all this there is an awakening to the possibilities that may come from the development and operation by government of resources that were formerly considered fair game for private exploitation.
Such disputes as the two nation-wide industrial strikes of 1922, the coal miners and the railway craftsmen, are rapidly forcing those not directly connected with the “operators” or the “strikers” to the opinion that government ownership is the remedy for industrial ailments of this character. They point to the Post Office Department as an argument in favor. While it is a fact there has been no trouble so far with postoffice employees, it does not follow that the same would be true with the railway, coal mining, and cotton industries. And if the Government should begin taking over industrial and commercial enterprises, where would be the end of such paternalism, and would it lead to sovietism? It is barely possible that governmental regulation has already gone too far.
But, nevertheless, from some such sources as have been mentioned or from a sales tax on gasoline may eventually come a relief to the burden of taxation which now and increasingly so in the future must otherwise be borne by the land.
Bonds—It is not always possible to raise by taxes sufficient money to make public improvements on a pay-as-you-go basis. It would not be economical to attempt to pave one-tenth the width of a street each year. One patch would be worn out before the next is put down. The whole must be done at the same time in order not to be vastly wasteful. And, in order to enjoy the improvement while money is being collected for its payment, the municipality must resort to borrowing. It is also argued that since future generations will enjoy the improvement they should be required to help pay for the same. The indebtedness represented by the bonds become a lien against the assessed property in the state, county, township, or district over which they have been laid. The taxes to pay off the bonds will be levied uniformly over all property or specially in proportion to accruing benefits according to conditions prescribed at the time the improvements were made.
Kinds of Bonds—Bonds are certificates of indebtedness by means of which the repayment of borrowed money may be spread over a series of years. They are classified as Sinking Fund, Annuity and Serial, depending on their manner of payment.
Sinking fund bonds are paid as a whole at the end of their term, interest being paid annually, or at some other fixed regular period, upon their face value. The name arises because of the custom of establishing a sinking-fund into which a certain proportion of the debt is to be paid annually, and this loaned out so that at the end of the period it will amount to the face of the bonds. Since there is always time lost between the collection and loaning of the sinking fund money the interest derived therefrom will not usually be the same as that of the bonds. For this reason and from the further fact that sinking funds are frequently drawn upon for other purposes than that for which they were created this type of bonds is less economical than either of the other two types.
The sinking fund which must be raised annually to discharge a debt of P dollars in n payments, if it can be loaned at i per cent, is given by the formula:197
Sinking fund = i⁄(1 +i)n- 1. P
To illustrate the use of the formula let the debt be $10,000, the average rate that can be expected from the sinking fund 4 per cent, and the time five years. Substituting in the formula,
S =.04⁄(1 +.04)5- 1.$10,000
To solve, the denominator is first evaluated:
| Log (1 +.04)5 | = | 5 log 1.04 |
| = | 5 × 0.017033 | |
| = | 0.085165 |
Taking the antilog,
(1 +.04)5 = 1.21665
and
(1 +.04)5 - 1 = 0.21665
Then
S = 0.4 × $10,000 0.21665 = $1846.27.
Annuity tables, which may be seen at nearly any bank or brokers’ office, or in Bulletin 136, U. S. Department of Agriculture, give the annuity which will amount to 1 in five years at 4 per cent as 0.1846271; this multiplied by $10,000 gives $1846.27.
To the nearest cent the following tabular statement shows the growth of the sinking funds:
| Year | Sinking- fund at Beginning of Year | Interest during Year | Annual Payments into Sinking- Fund | Total Sinking- fund at End of Year | ||||
|---|---|---|---|---|---|---|---|---|
| 1 | 0. | 0. | $1,846. | 27 | $1,846. | 27 | ||
| 2 | $1846. | 27 | $73. | 85 | 1,846. | 27 | 3,766. | 39 |
| 3 | 3766. | 39 | 150. | 66 | 1,846. | 27 | 5,763. | 32 |
| 4 | 5763. | 32 | 230. | 53 | 1,846. | 27 | 7,840. | 12 |
| 5 | 7840. | 12 | 313. | 61 | 1,846. | 27 | 10,000. | 00 |
If this loan, the bonds, bore 5 per cent interest the cost to the borrower would have been the principal plus the interest on principal less the interest on the sinking fund:
$10,000 + $2500 - $768.65 = $11,731.35; or the interest on the loan plus the sinking-fund payments:
$2500 + $9231.25 = $11,731.35
Serial Bonds are such that a fixed amount of the principal is retired at definite periods of time. Usually the amount retired is an aliquot part of the whole. The payments to be made at any particular time is the fixed portion of the principal plus the interest on the unpaid portion up to that date. The periods of retirement are usually annual or semi-annual.
Assuming the principal to be P and that one nth part of it is paid each year, the formulas are:
Annual payment for the kth year
= P ( 1⁄n + i (1 + 1 -k⁄n)).
Interest for the kth year
= Pi (1 + 1 -k⁄n).
Total amount of interest to the end of the kth year
= Pik (1 + 1 -k⁄2n).
Total amount of interest and principal paid up to the end of the kth year
= Pk (1⁄n + i (1 + 1 -k⁄2n)).
The following table shows how a debt of $10,000 bearing 5 per cent interest would be discharged by equal annual payments in five years:
| Year | Principal at Beginning of Year | Interest for Year | Principal Repaid at end of Year | Total Annual Payment |
|---|---|---|---|---|
| 1 | $10,000 | $500 | $2,000 | $2,500 |
| 2 | 8,000 | 400 | 2,000 | 2,400 |
| 3 | 6,000 | 300 | 2,000 | 2,300 |
| 4 | 4,000 | 200 | 2,000 | 2,200 |
| 5 | 2,000 | 100 | 2,000 | 2,100 |
| Totals | $1,500 | $10,000 | $11,500 |
Annuity Bonds are those wherein a uniform periodic payment is made to discharge the debt in a given time. The formula for the necessary payment to discharge a debt of P, with interest rate i in n years is,
Annual payment = i⁄1 - (1 -i)-n. P.
Results may be taken from books of tables already referred to or by means of logarithms the formula may be solved. For example let it be required to discharge a debt of $10,000 in five equal payments, the rate of interest being 5 per cent.
Solution:
(1 + i)-n = 1.05-5.
Log 1.05 = -0.021189
-5 Log 1.05 = -0.105945 = 9.894055 - 10
Log-1 (9.894055 - 10) = 0.783529
1 - 0.783529 = 0.216471
Log Annual Payment = Log i - Log 0.216471 + Log P
= Log 0.05 - Log 0.216471 + Log 10,000
= (8.698970 - 10) - (9.335398 - 10) + 4.000,000
= 3.363572
Annual Payment = Log-1 3.363571 = $2309.748.
The following table shows the repayment of the loan by annual payments of $2309.75:
| Year | Principal Owing at Beginning of Year | Interest for Year | Principal Repaid at End of Year | Total Payment for Year |
|---|---|---|---|---|
| 1 | $10,000.00 | $500.00 | $1,809.75 | $2,309.75 |
| 2 | 8,190.25 | 409.51 | 1,900.24 | 2,309.75 |
| 3 | 6,290.01 | 314.50 | 1,995.25 | 2,309.75 |
| 4 | 4,294.76 | 214.74 | 2,095.01 | 2,309.75 |
| 5 | 2,199.85 | 109.99 | 2,199.75 | 2,309.74 |
| Totals | $1548.74 | $10,000.00 | $11,548.74 |
Since it is more convenient to have the bonds in even hundreds of dollars and the interest in dollars some adjustment from the theoretical amounts are usually made but such that the annual payments will be near the theoretical. Sometimes, too, the bonds are made smaller for the first few years then gradually increase so that the natural growth in population and wealth may bear its proportional burden. One adjustment for the example just given is shown:
| Year | Principal Owing at Beginning of Year | Interest for Year | Principal Repaid at end of Year | Total Payment for Year |
|---|---|---|---|---|
| 1 | $10,000 | $500 | $1,800 | $2,300 |
| 2 | 8,200 | 410 | 1,900 | 2,310 |
| 3 | 6,300 | 315 | 2,000 | 2,315 |
| 4 | 4,300 | 215 | 2,100 | 2,315 |
| 5 | 2,000 | 100 | 2,000 | 2,100 |
| Totals | $1,500 | $10,000 | $11,550 |
Total Cost by the Three Kinds of Bonds—The total cost of a loan, as shown by the following table taken from Bulletin 136, U. S. Department of Agriculture, is generally greatest under the sinking fund plan and least under the serial. The serial, too, is the simplest to compute.
Total Cost of a $100,000 Loan for 20 Years
Interest Compounded Annually198
| Annual Interest on Bonds | Sinking-fund Bond Compounded Annually at | Annuity Bond | Serial Bond | |||
|---|---|---|---|---|---|---|
| 3% | 31⁄2% | 4% | ||||
| 4 | $154,431 | $150,722 | $147,163 | $147,163 | $142,000 | |
| 4 | 1⁄2 | 164,431 | 160,722 | 157,163 | 153,752 | 147,250 |
| 5 | 174,431 | 170,722 | 167,163 | 160,485 | 152,500 | |
| 5 | 1⁄2 | 184,431 | 180,722 | 177,163 | 167,359 | 157,750 |
| 6 | 194,431 | 190,722 | 187,163 | 174,369 | 163,000 | |
The sinking-fund bonds are made out to run the full period and are paid for from the proceeds of the sinking-fund at the end of the term. Serial and annuity bonds are made to mature in proportion to the amounts paid each year. In the example used the serial system would retire $2000 worth of bonds each year, while with the annuity system $1800 would be retired at the end of the first year; $1900, the next; $2000, the third; $2100 the fourth, and $2200 the fifth.
Interest coupons, that is, notes for the payment of interest at stated intervals and providing for interest upon the interest if not paid at maturity, are usually attached to the bonds for the entire period that they run, one to be clipped at each interest pay day.
The Term of Bonds—Several states and some of the large cities have issued bonds for road improvements for long series of years. This has met considerable opposition on the ground that the bonds should not run longer than the life of the improvement, otherwise there may be another series of bonds lapping upon the first, and perhaps a second and third upon these. The arguments in favor of the long terms are that some parts, at least, of the improvement will be permanent, that reconstruction will cost less than original construction so that lapping will do little harm, and that money may be obtained at a lower rate on long-term than on short-term bonds.
It is a quite general practice for the abutting property-holders to pay for the first pavement by special assessment. Resurfacing is frequently and general repairs almost universally paid for by the city as a whole. It would seem, especially where property-holders pay on the installment plan, that a term of bond well within the life of the pavement ought to be adopted. Ten years seems a reasonable time, fifteen years at the longest. If borrowing is continued and one loan lapped upon another there comes a time when the charges for paying off the debt and the interest will more than equal the amount that can be borrowed. For instance suppose a man can continue to borrow $1000 per year on five years’ time, $200 to be paid each year. During the first year he would owe $1000, and at the end of the year he pays $200 on the principal and the interest. He borrows another $1000, so during the second year he is in debt $1800 and must pay at the end of the year $400 principal and $108 interest. The third year he is in debt $2400 and pays on principal $600 and interest $144. The fourth year his debt is $2800, and payment on principal $800 and the interest, $168. The fifth year and every year following the debt is $3000 and the payment necessary on principal $1000 and the interest $180. The payments on the principal amount is equal to exactly the sum he can borrow. While the amounts used in the illustration are small the principle is the same for loans upon long-term bonds.
It would be better for cities and states to progress more slowly than to have saddled upon them a debt in perpetuity. There are times, however, when municipalities or other districts will find it the best policy to borrow money and issue bonds. Serial and annuity bonds have this advantage that as the improvement depreciates in value with time the burden of indebtedness for the improvement becomes less. But it can scarcely be considered the part of wisdom to have the bonds run longer than the life of the pavement for which they were issued. The pay-as-you-go plan is by far the most economical method of procedure, but it cannot always be followed. There are times when budgetary appropriations are insufficient and the people will not stand for heavy taxation. In one city it had been the custom for the city by general taxation to pay for paving intersections. As the intersections amounted to about 30 per cent. of the total area paved that was thought to be an equitable division, because the entire city receives some benefit from each pavement put in. But the applications for paving were much more each year than the city could pay for from its ordinary budget. The amount of paving done each year was limited by the area of intersections that the city was able to lay. Some districts said, “We will pay for the whole pavement, intersections and all, rather than go without or wait over one or two years.” The city council allowed this to be done, and, soon, even went further and passed an ordinance taxing the whole cost including the intersections to the fronting property. This method has been in use for several years and the city of less than 70,000 inhabitants has more than 200 miles of pavement, and no citizen was ever known to protest the scheme. Of course the public as a whole could have paid for all these intersections by general taxation just as easily as the private property-holders could, but if taxes had been raised for that purpose there would have been many complaints that the poor were being taxed to pave the streets in front of the residences of the rich.
In fact, the last idea mentioned is one of the arguments in favor of large bond issues such as are found in several of the states like New York, Maryland, Illinois, California, Missouri and other states, to say nothing of cities and counties. The argument is that the entire state, county or city system should be constructed about the same time that all may have equal benefit of it and that there shall be no intentional partiality. Nelson P. Lewis states in the American Highway Engineers’ Handbook in effect that on a 4 per cent basis the $100,000,000 bonds of the state of New York will mean an annual tax of $4,890,000 for interest and sinking-fund charges, to say nothing of the annual maintenance and renewal expenses, running through two generations. He claims the same system of roads could have been built, at no greater annual appropriations, in twenty years’ time and the people would not have been saddled with debt, and it will require at least half that time to complete the system with the bonds and the debt.
In Illinois, on the other hand, the debt, some $60,000,000 is to be paid from the automobile licenses, which will be used for its amortization. In Maine automobile licenses are also being used to pay bonds, but only $500,000 will be issued in any one year and the total outstanding cannot by law exceed $2,000,000.
Maryland uses a short-term-bond—fifteen years—and provides that any road renewals required before that time shall be paid for out of general appropriations.
New York city had issued bonds until more than two-thirds of the total taxation for streets had to go to interest and amortization so some years ago a change was made to what they called the pay-as-you-go plan. It took four years to make the change, so, now, non-revenue-producing improvements are made without issuing bonds. Revenue-producing enterprises, such as water supply, transit lines, and water-front improvements, are still financed by long term, 50-year bonds.
Stocks and Bonds—Railways, interurban trolley lines, street-car lines, and toll roads have been financed largely by stock subscriptions. Public roads, being without a revenue-producing power, cannot be financed in this manner, except perhaps in exceptional cases where a few persons are willing to donate their money or are building for private use but are willing to share the same with the public. Large bridges may occasionally be built in this manner, the stockholders exacting toll for passage in order to get a return on their investment. However, such cases are negligible in the great national scheme of public highways.
National and State Aid—The history of National and State Aid in the United States has been treated quite fully in Chapter V. It will not be necessary to repeat that here. Suffice to say that with possibly a few exceptions all the states in the Union now have some form of state aid—money, engineering advice, testing materials, convict labor, etc.; also the territories of Alaska, Hawaii, the Philippine Islands, and Porto Rico, or else the governments of these divisions directly take charge of the construction of a part or a whole of the roads. The acceptance of Federal Aid practically made it necessary for the states to have highway departments to distribute the Federal Aid money and the equal amount the state had to put up to match it. Several of the states like New York and California had raised by bond issues large sums of money before federal aid was available and distributed it to counties that would coöperate in the building of roads to be united into a comprehensive state system. New Jersey, the first State Aid state, and Massachusetts, a close follower, had already “paved the way” as an example for other states to follow.
Federal Aid—The Federal Aid road act, approved July 11, 1916, appropriated “out of any money in the Treasury not otherwise appropriated, for the fiscal years ending June 30, 1917, the sum of $5,000,000; for the fiscal year ending June 30, 1918, the sum of $10,000,000; for the fiscal year ending June 30, 1919, the sum of $15,000,000; for the fiscal year ending June 30, 1920, the sum of $20,000,000; and for the fiscal year ending June 30, 1921, the sum of $25,000,000.” In addition there was appropriated $10,000,000—$1,000,000 per year until 1926—for the survey, construction and maintenance of roads within or partly within the national forests in coöperation with the states in which these forests are located.
The Secretary of Agriculture was by the Act, after making a deduction of 3 per cent, to cover expenses of administration, authorized to apportion the remainder “among the several states in the following manner: One-third in the ratio which the area of the State bears to the total area of all the States; one-third in the ratio which the population of each State bears to the total population of all States...; one-third in the ratio which the mileage of rural delivery routes and star routes in each State bears to the total mileage of rural delivery routes and star routes in all the States....”
States desiring to avail themselves of the benefits of the act were required to “submit to the Secretary of Agriculture project statements setting forth proposed construction of any rural post road or roads therein.” If approved the states were further to “furnish to him surveys, plans, specifications and estimates therefor as he may require.” Only such projects as were “substantial in character” might be approved. “Items included for engineering, inspection, and unforeseen contingencies” may not be greater than 10 per cent of the total cost of the work. Upon the final approval by the Secretary of Agriculture of the plans, specifications and estimates and its certification to the Secretary of the Treasury the Act provides that there should be “set aside the share of the United States payable under this Act on account of such project,” not to “exceed fifty per centum of the total estimated cost thereof.”
It was not the intention to take away from the states any right which they might enjoy for the construction work was to be done in accordance with the laws of the state within which a project lay but subject to the inspection of the Secretary of Agriculture. He also has power to pay to the states the amount of money set aside when a project has been satisfactorily completed and also to make payments on the same during the process of construction not to exceed the United States’ pro rata part of the value of the work done, and not to exceed $10,000 per mile of road exclusive of bridges more than 20 feet clear span.
The states snapped up this money greedily and the demand for more money became so great that in 1919 Congress appropriated $200,000,000 more, and still later, 1921, appropriated $75,000,000, and $15,000,000 for national forest roads. And still later, June 18, 1922, there was authorized an appropriation of $65,000,000 to be expended during the fiscal year ending June 30, 1923, and $75,000,000 for the succeeding fiscal year. At the end of five years after the passage of the Federal Aid road act, there had been completed under its terms 7469 miles of road and 17,977 miles additional were under construction. Texas ranked first in the number of miles completed, with 682; and Illinois had received the greatest amount of federal aid on projects completed and under construction, with $11,807,906; while Texas was a close second with $11,393,485.
While the mileage built by Federal and state aid is less in the more compact densely populated Eastern states, the cost per mile is much more as much more expensive types of roads are being built. In the West and South earth roads largely make up the mileage. It has been objected that these do not properly come under the wish of Congress when it provided that the fund should be used only in the construction of “substantial” roads. Earth road advocates argue that such features as grading, draining and straightening roads may be considered permanent, in so far as the road is ready for any type of surfacing that may be desired to be laid at a later date. Recognizing the merits of both contentions The Bureau of Public Roads issued, in 1922, a decision practically as follows:
The question of a more definite policy to be followed in connection with the approval of earth road Federal Aid projects which involve grading and drainage only, has for some time been under consideration, and it has been decided that hereafter such projects will only be approved on condition that The (State) Highway Department agree, in so far as it may legally do so, that within a reasonable time after completion of the improvement of the project as an earth road, it will place or cause to be placed thereon, an adequate and substantial type of surfacing.
By adequate and substantial type of surfacing is meant such type as will carry the prospective traffic with such maintenance expenses that the total annual charges will represent a reasonable expenditure for the public service rendered by the highway.
It seems, therefore, that the Government expects to assist in the financing of roads that appear adequate for the purposes intended.
State Aid—The machinery of paying state money to finance local roads throughout the counties varies greatly with the different states. For example half may come from Federal Aid, half the remainder from State Aid, and half the remainder from County Aid, leaving only a very small amount for the local abutting property. In other states a large part falls on the abutting property. It would seem as though through main traveled roads should be largely financed by nation and state while local marketing roads which will not require such expensive surfacing should be largely locally financed.
Present State of Federal Aid—The Bureau of Public Roads gives out the information that 11,930 miles of road have been constructed during the year 1921 by the States in conjunction with Federal Aid, at a total cost of $231,963,682, toward which the government allotted $94,057,089. There were under way during the year 31,228 miles, which was about one-half the road work carried on in the United States during the year. It is safe to assume, then, that through the stimulus of Government Aid, direct and indirect, more than 20,000 miles were built during 1921, and that more than 40,000 more miles are under way.
The effects of Federal Aid is just now beginning to be felt; a few years more will see the United States so well supplied with good roads that the national appropriations for Federal Aid may be reduced materially.
It is estimated that the $190,000,000 available for allotment, $65,000,000 for the year ending 1923, $75,000,000 for the year 1924, and $50,000,000 remaining from previous appropriations, will result in the construction of more than 25,000 miles of road, which added to the 46,000 miles that are expected to result from previous federal appropriations, makes a total of 71,000 miles, or nearly 40 per cent of the estimated 180,000 miles of good roads in the System of Federal Aid roads now being outlined.
The U. S. Bureau of Public Roads gives out the figures up to December 31, 1921, as follows:
| Federal Aid Apportioned, 1917 to 1922 inc., | $339,875,000 |
| Projects under Construction: | |
| Total Estimated Cost | 275,652,104 |
| Federal Aid | 117,049,690 |
| Miles | 15,834 |
| Projects on which Construction is Completed: | |
| Total Estimated Cost | 221,739,710 |
| Federal Aid | 95,054,184 |
| Miles | 12,907 |
Matching Federal Aid Dollars—The main argument that brought the Federal Aid law into being was the need of farm to market roads and the fact that in the past the expense for building and maintaining roads fell most heavily upon the farmer. In an excellent report made by Senator Bankhead (Senate Report 250, 64th Congress, 1st Session) for the Committee on Post Offices and Post Roads, the statement is made that “it is probably conservative to say that at least 75 per cent of the money raised for road purposes” at that time, 1916, “is paid by the owners of country property.” He gives statistics to show that the owners of less than one-third of the real property of the United States were paying more than three-fourths of the cost of the public roads. This did not seem to be equitable, since the country people did not have a monopoly on their use. The burden of building and caring for the roads should be distributed among all who were benefited by them. There is no very adequate method of doing this, but inasmuch as all citizens, both city and country, share in the raising of national revenues, the result of federal appropriations would be to tend in some measure to equalize the cost of roads as between city and country.
It was not thought wise to make a direct gift of money from the federal treasury, as that would favor too much of paternalism, would result in “pork barrel” scandals, and would stifle local initiative, energy, and self-help. If the federal government were to enter upon the building outright of a system of roads, there would be a temptation for the states and counties to cease building in the hope the government would eventually get around to them. Likewise the demand for “pork” would be enormous. The plan was therefore devised of requiring the state to pay half the expenses of road building, that is, of matching dollars, fifty-fifty, with the federal treasury. It was further decided that federal money should go into road extensions, leaving repairs and renewals to the states. If states refuse to perform the necessary maintenance the only recourse the government has is to withdraw future Federal aid. The object of the government was to add to the stock of good roads, and eventually secure the necessary 20 per cent upon which engineers state, 80 to 90 per cent of the entire traffic can be adequately accommodated.
Many of the states were devoid of the necessary machinery to take care of this money and expend it efficiently in the construction of roads or to maintain them in good condition afterward; so the Government asked that highway departments be created, if they did not already exist, in order that there might be skilled supervision and efficient organization on the parts of the states as that was the best insurance that these duties would be thoroughly performed. Furthermore there would be some centralized authority at Washington and some at each state capital; the initiative and the choice of location, types, and materials for road building would not be left wholly to local administrations which were more likely to be swerved to meet the selfish interests of prominent local personages than is possible in larger political units. The judgment of Congress is less likely to be biased by local conditions or by selfish individuals than would that of a township or county board, or even the State Legislature. On the other hand from the very beginning of the national federation states have jealously guarded their rights, giving up very reluctantly to the Federal Government in any attempts toward centralization. So “no policy,” states the committee report, “should be adopted which does not permit the retention by the States of the fullest measure of control consistent with the necessary inspection and safeguarding which is customary with all federal appropriations.” Hence the states were left the power or not as they saw fit of availing themselves of the Government Aid money. Nearly if not all the states in the Union have availed themselves of Federal Aid. It is claimed by opponents of the system that this is because if a state does not take its quota the money will be appropriated to other states while this state will still have to pay its proportional part to the fund from which the money comes. This they claim is pernicious and has caused states to ask aid when voting the taxes to match the same was extremely burdensome to the people. In other words the people “are forced into a position where their only justification is a presumption that they are grabbing while the grabbing is good.”199
It was the intention of the framers of the law that the contribution from the government would be so substantial that results of magnitude might be accomplished and still at the same time not raise taxes higher than the people could stand. The plan adopted seemed just. First the road is primarily for the use of the people hence population should be a factor. A secondary consideration was to make accessible the best products of the farm and to develop the land which on account of its remoteness to markets and the conditions of the highways was not in the highest or best state of culture. Area then was a second factor. The third factor was the post roads—rural delivery and star routes. This last as has been pointed out in a previous chapter was possibly the peg upon which the garment could be hung in the closet of constitutionality. However, it was thought that “the interests of the East are protected by the factor of population, the interests of the West should receive consideration through including area as a factor of apportionment. Finally, the direct interest of the federal government,” according to the Committee, “as represented by the great mileage of rural delivery and star routes for the transportation of mail and parcel post should have some weight in the granting of federal funds.”
Federal Aid has now been in operation for five years. Most people think it has demonstrated its worth. But it must be remembered that five years is a short time for the stupendous task of transforming an almost impassable conglomeration of roads into a usable system of comfortable highways. The soldiers who went to France during the World War came back enthusiastic converts of good roads. Foreigners traveling in this country have frequently marveled at the paucity of good roads. The natives having grown up here knew no better. The Federal Aid experiment has been the means of bringing the people to a partial knowledge of the benefits of better highways. They will not be content to go backward. In the words of a committee report to the Legislature of the State of Nebraska200: “The (Federal Aid) System seems to be well grounded and is nourished and sustained by nation-wide organizations, that are banded together for the purpose of maintaining and extending the system, and inasmuch as they seem to be powerful enough to influence the maintenance of the system, it will no doubt be maintained until some organization equally influential makes of the matter an issue and overturns the system.” The Committee, while evidently prejudiced against matching dollars with the Federal Government, admitted the value to the state of the work done and that “there is no more important internal improvement in which the state can engage.”
Under a Federal highway act signed November 9, 1921, $75,000,000 becomes available by Federal Aid for road construction in the several states for the fiscal year ending June 30, 1922, and in addition $15,000,000 for roads in national forests. This new Federal Aid Act is very similar to the act of 1916. The method of allotment is as before; the ratio of allotment nearly the same, but a new feature is that the minimum allotment to any state shall not be less than one-half of 1 per cent of the total to all states, which in this case amounts to $365,000. This increases the apportionment to the four states of Delaware, New Hampshire, Rhode Island, and Vermont.
The new Act changes the manner in which a state may use its allotment. Each state must select a connected road system not exceeding 7 per cent of its road mileage for improvement with Federal Aid. This system will be divided into two classes, one to be known as “interstate highways” the other as “intercounty highways.” The interstate highways must not exceed three-sevenths of the system selected; on them not more than 60 per cent of the Federal Aid Allotment can be spent without the joint approval of the Secretary of Agriculture and the State Highway Department. The intercounty highways will receive the remainder of the allotment.
Some of the Western states where there are large areas of unappropriated public land due to the desert or mountainous nature of the country, found it to be impossible to continue the matching of Government funds. The new act provides that in states where the unappropriated public land amounts to more than 5 per cent of the area of the state, the 50 per cent allotment is increased by an amount equal to one-half the percentage of unappropriated public land in the state.
Before any funds can be paid to any state, the state must appropriate money under the direct control of the Highway Department to match the Federal apportionment or so much as it desires to avail itself of. Likewise it must provide suitable means for the maintenance of Federal Aid highways.
The allotment to each state of Federal Aid funds available June 30, 1922, under the act signed November 9, 1921, authorizing an appropriation of $75,000,000, follows:
| State | Allotment |
|---|---|
| Alabama | $1,553,420 |
| Arizona | 1,053,281 |
| Arkansas | 1,264,142 |
| California | 2,462,098 |
| Colorado | 1,341,175 |
| Connecticut | 480,897 |
| Delaware | 365,625 |
| Florida | 886,825 |
| Georgia | 1,997,957 |
| Idaho | 938,536 |
| Illinois | 3,246,281 |
| Indiana | 1,958,855 |
| Iowa | 2,102,872 |
| Kansas | 2,102,281 |
| Kentucky | 1,417,178 |
| Louisiana | 996,989 |
| Maine | 695,160 |
| Maryland | 640,629 |
| Massachusetts | 1,096,176 |
| Michigan | 2,249,532 |
| Minnesota | 2,123,597 |
| Mississippi | 1,294,906 |
| Missouri | 2,448,128 |
| Montana | 1,546,885 |
| Nebraska | 1,581,189 |
| Nevada | 953,436 |
| New Hampshire | 365,625 |
| New Jersey | 942,870 |
| New Mexico | 1,189,823 |
| New York | 3,696,447 |
| North Carolina | 1,709,333 |
| North Dakota | 1,164,714 |
| Ohio | 2,823,004 |
| Oklahoma | 1,752,339 |
| Oregon | 1,182,663 |
| Pennsylvania | 3,398,925 |
| Rhode Island | 365,625 |
| South Carolina | 1,061,237 |
| South Dakota | 1,204,060 |
| Tennessee | 1,647,692 |
| Texas | 4,425,172 |
| Utah | 849,417 |
| Vermont | 365,625 |
| Virginia | 1,456,828 |
| Washington | 1,103,709 |
| West Virginia | 802,359 |
| Wisconsin | 1,894,815 |
| Wyoming | 934,617 |
The question of whether or not it is wise for a state to match the Federal Aid appropriation for the purpose of building roads is a debatable one. When people see the amount of their taxes going up by leaps and bounds they naturally look for some place for retrenchment. The road tax being, now, one of the largest in the state is naturally subject to attack.
In the consideration of the problem two questions stand out prominently: Do the results so far obtained justify the expenditure? and can the United States and the States afford to continue the expenditures?
Reports from the Bureau of Public Highways indicate that with the aid of the $350,000,000 previously appropriated by the Government, 17,000 miles of road had been completed up to May 31, 1922, and in addition nearly 14,500 miles were under construction involving more than $287,500,000 of Federal Aid. To match this fund the states have appropriated approximately $380,000,000, making a total of $667,500,000. The Bureau states the average cost of roads per mile of all types of construction with Federal Aid has been $17,120, of which 43 per cent has been the cost to the government. About one-fifth of the Federal system, that it is thought will be sufficient to accommodate 80 per cent of the traffic, has been completed. This seems to be reasonable progress considering the stupendousness of the task.
The expenses so far are a little more than $6 per person in six years or approximately $1 per person per year, counting the population of the United States as 110,000,000. If any one is anxious to save this expense it can easily be done by a little economy. Refraining from smoking one cigar a month, from drinking one ice-cream soda a month, from going to three picture shows in a year, or by allowing the automobile to stand in the garage one or two Sundays per year.
Practically each state in the Union could easily collect its share of the match money by a one-cent tax per gallon on gasoline. A score of states have adopted this method and more will, as by this means the land which is highly burdened with general and school taxes will be considerably relieved, and the road tax shifted to the road users. The man who owns an automobile will not thus have the ultimate amount which he pays for roads decreased, but the man who does not own an automobile will be relieved in so far as the gasoline tax is not passed on in the way of increased charges. But the gasoline tax will not appear on the annual tax receipts and therefore is less noticeable.
The answer to the question, “should the states continue to match the Federal Aid dollar?” in the opinion of the writer is, “yes, until the Federal system of 180,000 miles of road is completed.” This ought to be accomplished in about ten years.
Most of the Mid-west and Western states pay into the national Federal Aid fund, as duties, revenue taxes, etc., less than they receive in the way of Federal Aid. These states, therefore, are the gainers in the matching process. Even where there is no financial advantage as in some of the more populous states, there is a psychological advantage in the stimulus which this money gives toward the building of good roads. Good, dependable, 365-days-a-year roads must come. They are demanded by the 10,000,000 pleasure automobile owners and their 30,000,000 additional passengers; they are demanded by the more than 2,000,000 commercial vehicle owners and their 50,000,000 patrons; they are demanded by the man who lounges along in a smooth-riding silent $10,000 car; and they are demanded by the driver of the sputtering, rough-riding, ear-splitting $400 car. Yes, good roads must come, and the Federal Aid movement begun at the behest and in behalf of the farm element will continue even if the burdens of building and maintenance be shifted through the gasoline tax and the automobile license, from the farm and city real estate to the owners and users of motor-driven vehicles. With all these influences working it is not likely legislatures will refuse to match dollars with the Government.
Financing Highway Transportation—There are at least three methods of financing highway transportation: (1) Individual; (2) Partnership; and (3) Corporation.
Individual—The individual method may be divided into two classes: (1) Those that are a part of auxiliary to or accessory to other business, and (2) those that make up or compose the business itself.
The highway transport lines that are auxiliary to other business may be illustrated by the delivery truck of the grocer, the trucks for hauling to and from the depots of large department stores, or better the trucks owned by creameries which perform a sort of express service for the producers of milk and cream. The Fairmont Creameries, with headquarters at Omaha, operate more than 140 trucks, many of which make regular trips over established routes, picking up at the farmer’s gate full cans of cream and milk and leaving empty ones. The cost of these services, while ostensibly borne by the creamery, must of necessity be accounted for and charged to the expense of doing business or to the individual sellers of cream. The business is not run as a trucking or transportation business, but as a creamery, a department store, or a grocery, and is reckoned in as part of the annual expense or overhead charges. The motor to the truck gardener is of as much importance as any other part of his business. In fact his plant would be as handicapped without it as would a clock without its hour hand. The same may be said of practically all enterprises which depend on transportation upon the highways as a function of their business.
All such transportation, therefore, is financed in exactly the same manner as the business itself, in fact it is a part of it.
In the other class of individual ownership the business is usually so small that one person, the owner, can look after the whole of it. He may or may not have any assistants. However, he finances it as an individual. He either has the money at the beginning or is able to borrow it. If he borrows it he gives his note acknowledging the debt and stating the time or times for payment, rate of interest and any other stipulations that might have been entered into at the time of securing the loan. He will probably give a mortgage on his property, that is a writ showing the debt to be a lien on the property under which the loaner of the money may, if it is not paid as stipulated, foreclose and sell the property for the settlement of the debt. It becomes null when the note on which it is based has been paid. If, however, it has been “recorded” in the office of the Register of Deeds or other place set aside for that purpose, it will have to be “released” and the release recorded in order to clear the title to the property.
Partnership—An agreement of two or more persons to combine their property, labor, or skill for the purpose of transacting any particular business for their joint profit is called a partnership. The agreement may be oral or written. The partnership is just as extensive as the business it is proposed to do, but no more so. Each partner is entitled to his share of the profits as arranged for in the agreement but in the absence of any stipulation the law will presume equal shares. The partners may agree on a way of dividing the losses, but such agreement will only hold as against those to whom it is made known and credit has been given accordingly. The laws usually provide that articles of partnership may be made known generally to the public by proper publication and recording in a place designated for that purpose. Although long neglect of any articles of agreement will act as a waiver against an innocent creditor.
In a partnership the action of one partner with some exceptions, binds the whole partnership, so that rather than have several members to a partnership it is better to form a corporation. A partnership may borrow money and mortgage its property just the same as an individual.
A transport line then could be financed by each partner putting in a definite proportion of the capital. Two men might enter into a partnership and one man furnish all the capital, the other the skill and experience necessary to operate the business, the profits and losses to be shared in a manner agreed upon. However, without notice to a creditor at the time the debt was entered into each partner could be held for the entire debt if partnership property would not take care of it.
The advantages to be derived from a partnership are that larger capital may be obtained and more business done, the benefit of business skill and experience may be procured, and the work of management may be sub-divided among the several partners so that each may become more proficient, or more efficiently administer his own department.
There will be no particular difference between the financing of the partnership and the individual ownership, except perhaps more capital will come in with more partners. The partnership agreement should, to prevent misunderstanding, be carefully drawn up in writing and signed by each partner. It should state the amount and kind of capital each partner puts into the business, the relations and duties of the partners, and the manner in which profits and losses are to be shared.
Corporation—A corporation is a legal combination of two or more persons into an artificial personage for the purpose of carrying on some lawful business under such grants as secure to it a legal existence and power to act even though the individual memberships change.
In this type of proprietorship the individual owners called stockholders are liable for the debts of the business only to the extent of their stockholding, in some states to double the par value of their stock. The stockholders have a voice in the affairs of the business only to the extent of their ownership of stock, such ownership being evidenced by certificates of stock issued in proportion to the number of shares of stock owned. State laws are voluminous and restrictions are numerous for the regulation of corporations. The organization must be made according to law and then incorporated. It must conduct its work according to definite requirements, file regular reports, pay special taxes, and so on. The business is conducted through a board of directors elected by the stockholders at regular intervals of time specified in the articles of incorporation. The board of directors usually elects its own officers and appoints a manager or managers for the business. The operation of the business is under the direction of a manager, who may as a rule appoint his assistants and employees, unless this latter be designated to under officers. The manager is under the supervision of the board of directors, and the directors hold their office at the hands of the stockholders. So that the real owners have only an indirect supervision over the affairs of the business. The corporation is given a name and seal and is empowered to act as an individual, may borrow money, own property, sue and be sued. Notwithstanding its somewhat cumbersome machinery the corporation is a favorite form of organization possibly because of its limited liability feature, its close centralized control even though the ownership be spread over large numbers, and the amount of money handled be great.
The large transportation companies, the railways, the steamship lines, electric street cars, canals, trolley lines, pipe lines, and so on, when held under private ownership, are all organized in this manner. There are many bus lines and many truck lines already incorporated, and with time the number will, no doubt, rapidly increase.
The shares of stock usually have a par value of $100. These are sold to investors to obtain the working capital. The amount of stock is limited by the articles of incorporation and must not exceed by the laws of most states an amount conducive to good business. The stock may be either common or preferred. Holders of preferred stock have some preferment such as drawing a definite fixed rate of interest while common stock receives no dividends until the interest on the preferred stock is paid.
Corporations may also raise money by selling bonds. These are certificates of indebtedness, bearing a fixed rate of interest, payable at definite fixed periods. Like other bonds they may be either sinking-fund, serial or annuity. Bonds differ from stocks in that their owners have no voice in the affairs of the corporation.
Money may also be borrowed on the notes of the corporation signed by its officers, when authorized by the board of directors.
Since the laws of the several states vary so widely and there are so many of them, it is impossible to give even a brief synopsis here. Should any highway transport company wish to incorporate it would be well to seek the advice of a lawyer and have him draw up the articles of incorporation and see that the laws of the state are fully complied with.
Public Ownership—It is not the intention here to go into a lengthy discussion of the merits and demerits of public ownership, but merely to mention this as a method of financing transportation lines.
On the continent of Europe public ownership of railways and canals has long been the practice. In England there is private ownership of railways, but the post office department operates the telegraph lines. In this country the Government has built and operates several ship canals, including the great Panama canal. The state of New York owns and operates the Erie Canal. During the War the operation of railways was taken under supervision by the Government, but this has now been turned back to the several lines. The public regulation, however, of railways is so strict, that they have so little initiative and freedom left, so little power to make rates, so little choice as how to deal with employees, that they might just as well be operated by the Government. Indeed, it is frequently stated that there is quite a large minority of the American citizenship that would like to see the Government take over all the railways and operate them as it does the Post Office at the mere cost of operation and maintenance.
On the other hand, a very large number of persons believe that the best governed nation is the one least governed and that the ordinary commercial and financial laws of supply and demand should regulate prices and that private capital should govern all industries.
There are places, however, where it seems to be the part of wisdom to establish public ownership. First, where the amount of money necessary to finance and operate the enterprise becomes a menace to the rest of the country, or where it is so large that it becomes a practical monopoly, then it would seem just for the Government to step in and, as in the case of the Standard Oil Company, force an unscrambling, or else take it over and run it as a public industry.
Second, where the work is so large that it is difficult to get private enterprise to take it over without grants of privileges that would be exorbitant and, perhaps, scandalous. The building of the Panama Canal proved too great a task for a French private company. This does not say that an American company could not have completed it, but to get money for a doubtful or uncertain proposition is not easy. The great Sault Ste. Marie locks under Government control are very satisfactory, probably more so than if they were operated by private capital for private profit.
Third, public ownership is advisable where private lines of transportation fail to accommodate the public. Numerous applications are being made nowadays by railroads for the privilege of discontinuing trains on branch lines. In some cases these have been allowed by railway commissions, in others refused. But if they are not paying, the public will not indefinitely force the railways to maintain them. Then it will be proper for the Government to take them over, finance and operate them, even at a loss if necessary, providing the same work can not be done by private highway transport lines.
Likewise, street-car lines are complaining bitterly at the inroads of the automobile upon their business. But street-car lines are necessary to the social and business functions of a city. It cannot very well get along without them. The streets are hardly wide enough to accommodate the passenger and commercial traffic as it is. With the street cars off that would be doubled with very much increased congestion and loss of time and a correspondingly greater number of accidents.
The street cars in every considerable municipality must be kept going. The Des Moines strike of 1921 proved that conclusively. It may be necessary for the city governments to take them over and pay any deficit from public taxation. But even that will be money well expended.
The same arguments apply to those lines of railroad whose traffic consists largely of short haul and comparatively small lots. If they cannot be made to pay it may be necessary for the public to take them over and keep them running on their longer hauls even at a loss in order to prevent the congestion that would ensue to the public roads should all the traffic be forced to the truck. Also, trucks and buses are not altogether dependable in spells of bad weather, and there may be other conditions that would make the steam train the better and more economical transportion agent, as it always is where large quantities are to be transported. It would be better to try to regulate all transport service that each might be made into a paying proposition. If it cannot be done by regulation the powerful long arm of government will have to take charge.
Selected References
Blanchard, A. H., “Elements of Highway Engineering,” Chapter II, John Wiley & Sons, New York.
Blanchard, A. H. and Drowne, H. B., “Text-book on Highway Engineering,” Chap. XXVII, John Wiley & Sons, New York.
Bradt, S. E., “Financing Permanent Roads,” Proceedings National Conference on Concrete Road Building, 1914, p. 26, Chicago.
Chatburn, G. R., “Highway Engineering,” pp. 335 et seq. John Wiley & Sons, New York.
“Financing and Bonding Highway Work,” Proceedings Am. Soc. C. E., Vol. XLVIII, four articles by F. S. Green, pp. 511-512; H. S. Sisson, pp. 513-515; E. C. Lunt, pp. 337-339; and J. N. Cole, 326-330.
Hews, L. T. and Glover, J. W., “Highway Bonds,” Bulletin 136, U. S. Department of Agriculture.
Lewis, Nelson P., “The Planning of the Modern City,” Chap. XIX; “Financing of Highway Improvements,” American Highway Engineers’ Handbook, Section 28; John Wiley & Sons, New York.
Nolen, John, “City Planning,” Chap. XVI, D. Appleton & Co., New York.
Robinson, C. M., “City Planning,” Chap. XVII, G. P. Putnam’s Sons, New York.
Tilson, G. W., “Street Pavements and Paving Materials,” Chap. VI, John Wiley & Sons, New York.
Van Ornum, “Theory and Practice of Special Assessments,” Transactions Am. Soc. C. E., Vol. XXXVIII, pp. 336-422.
Footnotes
197 See Chatburn’s “Highway Engineering,” Wiley & Sons, New York, p. 335 et seq.
198 From Bulletin 136, U. S. Department of Agriculture.
199 Newspaper article.
200 Report of a Joint Committee appointed by the Governor and the 1921 Session of the Nebraska Legislature regarding the relative cost of road construction by the state and by various counties.