two limitations upon the city, one upon the debt limit and the other upon the tax rate, both referring back to the assessed valuations of real estate. That system was working fairly well, when the city had recourse to taxation which included real estate and personal property and other subjects of municipal taxation. Since that time, however, two things have happened; the legislature has taken away from the city resources for taxation through assessments made locally, and secondly, there is a smaller base from which our debt limit and also our rate of taxation are determined. While certain taxes have been imposed from which the city receives a share from the state, as compensation for taking away the personal property, the state has also taken certain real estate which was formerly assessed locally, such as machinery, to which I referred yesterday, which amounts to some millions of dollars of assessed valuation.

The second feature which is materially affecting the city and the tax rate and debt limit is the fact that we are working under a charter which provides expressly for the amounts of salaries to be paid, and every year bills are prepared for the legislature, increasing the salaries, and increasing expenditures-mandatory legislation, which requires the city to include in its budget increases, not only for salaries but for investigating commissions, paid for by the city; for educational funds; roads; and improvements. All of these must first be taken care of in the budget before the necessities of the city government can be taken into account in fixing the

tax rate.

Now, it does seem that while tax-rate limitation is a perfectly proper method of controlling extravagance, if that is to be attempted in New York City, or elsewhere, there should be at least a limit upon the amount which may be imposed upon the city, and which must be first provided for. That has been why the tax rate in New York has been up to the limitation; because first of all we have had to meet these mandatory requirements proposed by the state, irrespective of what the city or its taxpayers desire; which must be met in the budget. While on such legislation the mayor has the power of approval or veto, that power may be overcome by the governor and legislature.

This subject of tax limitation should take into consideration not only the fixing of debt limit and tax rate, but a'so the giving to the municipalities of more discretion and more home rule on the subject of what payments they may be required to make as to salaries and as to the various expenses of local government.

FRANK B. JESS of New Jersey: Mr. President and gentlemen of the conference: I want to say just a word about this very important subject. I was very much interested in the remarks of Mr. Fernald, who told you of his connection with the making of the

budget in New Jersey, as the governor's adviser. If he had not been so exceedingly modest he could have told you of the very good work he has done in that connection.

New Jersey, I think, was perhaps one of the pioneer states in the matter of attempting to regulate or limit the tax rate. I think it was in the year 1905 that in response to a rather general public demand a bill was passed fixing a maximum tax rate of 1.75. That continued in operation for a number of years. However, at each session of the legislature amendments were introduced, which in one form or another permitted a departure from the limited rate. And I believe that whatever else we may think about this matter of the limitation of public expenditures, we shall all come inevitably to the conclusion that the fixing of an arbitrary rate is not the solution of the problem. It happens that in New Jersey at the present time, at least among those who are especially interested in the subject of taxation, there is considerable d'scussion of ways and means to limit public expenditures, because in that state, as in all others, expenditures have been mounting by leaps and bounds from year to year, and there is no effective check upon them.

We have the budget system in the state and in the municipalities, and the taxpayers have the right to appear after the budget is tentatively adopted and be heard, but there is absolutely no way, no means, by which they may effectively express their disapproval of any budget that may be adopted. We have a debt limitation, as to the issuance of bonds. We cannot in any case go beyond seven per cent of the assessed value of the real property, including improvements, and as I have thought of this matter in the last two or three years, it has seemed to me that it ought to be possible to work out some such system to apply to current expenses. I only wish to say this, in conclusion, that I believe that this conference can undertake no more important work than the consideration of this matter of limitation of public expenditures, and I should very much like to see a committee appointed that would give special study to the subject, with the object of reporting at the next conference, if possible, some workable, effective, scientific plan of dealing with this matter. That is a pretty big job and it may not be possible of accomplishment, but I think we ought to at least undertake it.

W. A. HOUGH of Indiana: Gentlemen of the conference: You may fix budgets until you go blind; you can place tax lim'tations in your laws; you can limit your levies; you can limit the operating capacity; but it will do you absolutely no good until you have vested in some discretionary power the right to pass upon these levies and to pass upon the indebtedness which townships and cities and counties seek to create.

We have in the state of Indiana, embodied in our constitution, a limitation on indebtedness of two per cent. That is in the consti

tution. No municipality may constitutionally create an indebtedness amounting to more than two per cent of the assessed valuation of the property within that taxing unit. That means that the county may have a two per cent indebtedness; that the township may have a two per cent indebtedness; that the city may have a two per cent indebtedness, making in total, as was originally intended, a limit of six per cent on indebtedness.

Now, how does it work out in practice? The first thing they discovered a great many years ago was that in one of the cities of Indiana they had already reached their two per cent limit for the civil purposes of the city, and they had no money left to build a very badly needed school house; and the school authorities, in violation of the constitution, went ahead and borrowed the money to build the school house. The matter eventually got into the courts and our supreme court suddenly discovered that they had two townships there; one of them was a school township and the other was a civil township, and they decided that each township could go to the two per cent limit. Now then, that principle has been pursued in our state until today the township may borrow two per cent for civil purposes; it may borrow two per cent for school purposes; it may borrow four per cent for the construction of roads-for the supreme court found out there was still another township there, and that was the road township. In the city of Indianapolis they have a civil city, then a school city, then a park city; they have a sanitary district there, each one of which subdivisions may go to the full constitutional limit in borrowing money.

Now then, there must be some sort of a way which is better, which is more reasonable, and which is more of a common-sense business method of deciding whether or not a city may borrow money for some particular purpose. You cannot limit extravagance by limiting either the tax levy or the borrowing capacity, unless you know what the money is to be used for. And the law in no case ever specifies anything in regard to what the money shall be used for. So that there must be, in my judgment, some sort of plan, such as we have adopted in Indiana, that is, in each case where a city or a township seeks to borrow money, seeks to create indebtedness, or seeks to make a tax levy, it must set out what the purpose is that they have in mind, and what they are going to expend the money for, and if that can be passed to some power which is beyond the reach of local branches, beyond the reach of local influence, you may have the business of that city or township or county subjected to some such sort of inquiry and investigation as is applied to the expenditures of private business.

There are, in regard to extravagance, several different questions that ought to be considered. One of these is the growing disposition to exempt property from taxation, and the further growing

disposition, when money is needed, to find some new place where it may be raised, or to levy an additional tax upon property which is already taxed, or to find some new property to tax; to decide, perhaps, that something is property which has never been decided was property before. I think in justification of the system we are using in Indiana-with the experience that you have heard from Mr. Zoercher, that it will show that if it is not the best plan that can be devised, at any rate it is the best plan which is now in force, under the law, in any state in the Union.

We have saved the people of the state of Indiana more than $9,000,000 since this law was enacted on the 11th day of March, 1921. Mr. Zoercher failed to give you one provision of the law, and that was that where any municipality seeks to borrow money at an interest rate in excess of five per cent, a petition from taxpayers is not required to bring that before our board. We are at this time having no petitions asking for authority to borrow money at more than five per cent, but early in 1921 all of the petitions that came before us asked for six per cent.

CHAIRMAN HAGERMAN: The gentleman has one minute more.

MR. HOUGH: Well, just a word more, then, and that is in regard to this discretionary power lodged in our board, and I want to enlarge upon that for this minute I have left.

In order to decide whether or not an improvement is needed, we look at four different things, in deciding whether it is wise to incur the indebtedness. The first of these is the necessity for the school house, or the road, or water works system, or electric light plant, or whatever it is that the municipality seeks to expend its money for. We next look at the public sentiment in regard to it; we try to ascertain from the people who are present at the hearing, and from other sources, what the public sentiment is; how many are in favor of the project, and how many are opposed to it. We look at the ability of the taxing unit to pay, and that is determined by the total amount of property that they have, the indebtedness they have at the time, and the tax rate. Our tax rates run in Indiana all the way from less than one per cent in some of our taxing units, up to the city of Mitchell, Indiana, where the tax rate is 5.16 on the $100 of property, and you must remember that all our property is assessed at its full and true cash value-every class of property. We have no classified property tax. And then, we look further at whether or not the contract price for the improvement is excessive or not, and in the examination of that question we have saved the taxpayers thousands and thousands of dollars, because these men, no matter how well-meaning they are, who are located in these municipalities, and who expend this money, become the victims of plausible speakers and of the local influence which is exerted upon

them by their friends, the men who elected them to office, and by their business associates.

In the issuance of bonds for the construction of roads, the contractor has his banker; he has his friends; he has all of the men from whom he purchases any of his supplies; all back of him, urging that the project be put through; all urging that it is very much needed, and that the people are all for it; that they are in favor of good roads, that they are in favor of fine schools; that we must take care of these Indiana boys and girls upon whom the mantle of the American citizen will soon fall. Well, these men sit around with their mouths open, and they pass the thing.

I will cite one instance of something which happened, to show you how little the people really know about how their money is expended. I was in Madison county on a hearing for the construction of a road. I went over the road; it did not need to be built; it was a road in very good condition. They wanted a bond issue of $45,000 to construct the road. There were fifty-two men present at the hearing who had petitioned for the road. There were a number there objecting to it. I talked to these people about it. I told them what their indebtedness was and what their present tax rate was, and I showed them exactly how much their tax rate would be increased for a period of ten years if they constructed this road. The road had been built before, under the very same law, and bonds had been issued for its construction, and they had not yet all been paid off. I asked these men as plain business men-the farmers who were complaining generally about taxes: "Do you want to add to your great burdens the amount of money necessary to build this road?" One of the men got up and sa'd, "Why, Mr. Commissioner, we don't understand this thing." He says, There is a man came out here from Anderson; he told us there was so much money available for the building of roads, and that if we did not get it, somebody else would, and we just thought we would like to get some work done on this road, and we thought the money was available for it." I took a vote on that thing, and every man that petitioned for that road voted against it every man. And the attorney who had prepared the petition got up and said, "Well, I guess maybe you are right about it, and that we ought not to build the road." The bonds were denied, and those people were saved an absolutely useless expenditure of $45,C00.

Now, then, without the power which is vested in our board, that road would have been built; the contractor would have completed it and taken his money, and the taxes would have gone up still higher in that one township.

Now then, during the interim that Mr. Zoercher spoke about, when this law was not in effect, covering just a little more than sixty days-to be exact, it covered seventy-one days-during that