Date of Award:

5-1959

Document Type:

Thesis

Degree Name:

Master of Science (MS)

Department:

Political Science

Committee Chair(s)

M. Harrison

Committee

M. Harrison

Abstract

Borrowing is of great importance in meeting local revenue shortages. Philadelphia began the history of local borrowing by financing the construction of a water system in 1789, from a loan of $150,000. By 1843, the seventeen largest cities had an outstanding indebtedness of $125.5 million. In the 1840's and 1850's cities and counties borrowed to construct public works, and aid in the building of railroads. They defaulted on their loans frequently. In spite of the low state of municipal credit, state governments enacted general legislation by which the local governments were granted greater freedom in borrowing. But after the Civil War the heavy borrowing for current expenditures as well as for permanent improvements became so large, and the defaults so many, that irate state governments began to impose debt limitations on the municipalities.1

Utah was no exception. The Utah Code states: "Any city of the first or second class may incur an indebtedness eight per cent of the value of the taxable property therein."2 Each state has the power to set its own limits as to the debt capacity of the local governments within that state. Utah has set eight per cent of the value of the taxable property as the limitation on cities of the first and second class.

The Utah State Constitution, article fourteen, section three states:

No debt in excess of the taxes for the current year shall be created by any....city, town, or village... unless the proposition to create such debt, shall have been submitted to a vote of such qualified electors as shall have paid a property tax therein, in the year preceeding, such election, and a majority of those voting thereon shall have voted in favor of incurring such debt.

Any borrowing over and above that expected to be received in taxes that year must have the consent of the people who pay property tax, before it can be entered into. The electorate however, cannot vote to incur an indebtedness in excess of eight per cent of the taxable property within that city.

Article fourteen, section three has forced the city commissions of the various cities and towns in Utah to submit the question of going into debt, above and beyond that which they could pay for out of tax funds collected in one year, to the electorate for approval. After this approval has been given, general obligation bonds are usually issued by the city. These bonds are bought by financial institutions and interest is paid to the purchasing institution by the city. These bonds can be paid for by increased taxation, cutting expenses or by revenue obtained from city-owned property.

The limits imposed by state governments have proved troublesome for many local governments. Property tax revenues declined in the tax limitation states and some localities could not even meet their ordinary expenditures. These local financial difficulties were particularly acute in Washington, West Virginia, Ohio, and Michigan.1

The growth of local expenditures required additional revenues; thus many states said that localities could issue revenue bonds. These bonds are paid for out of the revenue produced by a city-owned electric plant or other income producing property. The bonds may be retired only from revenue incurred from the utility. The people can not be taxed to pay off this obligation. The city council votes on these bonds and if passed no further vote is needed.

This thesis will be concerned entirely with general obligation bonding in the city of Logan, Utah. Many worthwhile improvements have been acquired by Logan City through the general obligation bonding method. The question of whether or not to go into debt for a certain project has caused many interesting arguments to be put forth by the Logan populace. A study of these arguments and their results is the object of this thesis.

Logan City has never had to default on any debt incurred. Its credit rating is very good. Other cities of comparable size that have had trouble meeting their obligations could profit by considering how Logan has been able to pay its debts and improve the city at the same time.

General obligation bonding is a part of the method employed for city improvement. But as before stated, these bonds cannot be issued unless an affirmative vote of those voting is obtained from the property holders. This thesis proposes to study the issues and purposes for which general obligation bonds were needed, to find out whether or not those in favor of the bonds had good foresight. Whether those against the bonds were looking out for the best interest of Logan and the interest shown by the public, as indicated in the number which turned out to vote, will also be studied.

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