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Methods of Financing

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The construction of sewerage works may be paid for by the issue of municipal bonds, by special assessment, by funds available from the general taxes, or by private enterprise.

10. Bond Issues.—A municipal bond is a promise by the municipality to pay the face value of the bond to the holder at a certain specified time, with interest at a stipulated rate during the interim. The security on the bond is the taxable property in the municipality. The legal restrictions thrown around municipal bond issues, the value of the taxable property in the municipality, all of which may be used as security for municipal bonds, and the fact that a municipality can be sued in case of default, make municipal bonds desirable and provide a good market for their sale. The funds available from a municipal bond issue are limited by the amount that the legal limit is in excess of the outstanding issues. The legal limit varies in different states from about 5 to 15 per cent of the assessed value of the property in the municipality. In some cases the amount available from municipal bonds has been increased by forming a municipality within a municipality such as a sanitary district, a park district, a drainage district, etc., which comprises a large portion or all of an existing municipal corporation. This case is well illustrated in some parts of the City of Chicago where the municipal taxing powers are shared by the City government, the Sanitary District, and Park Commissioners. The right to create a new municipal corporation must be granted by the state legislature. Knowledge of fixed bonds, serial bonds, life of bonds, sinking funds, etc. is an important part of an engineer’s education.[14]

Bond issues must usually be presented to the voters for approval at an election. If approved, and other legal procedure has been followed, the bonds may be bought by some of the many bonding houses, or by private individuals, and the money is immediately available for construction. The bonds are redeemed by general taxation spread over the period of the issue.

11. Special Assessment.—A special assessment is levied against property benefited directly by the structure being paid for. Special assessments are used for the payment for the construction of lateral sewers which are a direct benefit to separate districts but are without general benefit to the city. In case the construction of an outfall sewer or the erection of a treatment plant, which may be of some general benefit, is necessary to care for a separate district, a part of the expense may be borne by funds available from general taxation. The legal procedure for the raising of funds by special assessment and the purpose to which the funds so raised may be applied are stipulated in great detail in different states and their directions must be followed implicitly. Illinois procedure, which is similar to that in some other states, is as follows: a meeting of the interested property owners is called by a committee or board of the municipal government, as the result of a petition by interested persons or through the independent action of the Board. At this preliminary meeting or public hearing arguments for and against the proposed improvement are heard. The engineer is present at this meeting to answer questions and to advise concerning the engineering features of the plan. If approval is given by the Board the plan and specifications are prepared complete in every detail and incorporated in an ordinance which is presented to the legislative branch of the city government for passage. If the project is adopted it is taken to the county court. An assessment roll is prepared by a commissioner appointed by the court. This roll shows the amount to be assessed against each piece of property benefited. A hearing is then held in the county court at which the owner of any assessed property may voice objections to the continuation of the project. The project may be thrown out of court for many different reasons, such as the misspelling of a street name, an error in an elevation, an error in the description of a pavement, but most important of all is definite proof that the benefit is not equal to the assessment. The many minor irregularities which may nullify the procedure in a special assessment differ in different states and in different courts in the same state, but in general no court can approve an assessment greater than the benefits given. After the project has passed through the county court and the assessment roll has been approved, bonds may be issued for the payment of the contractor. Special assessment bonds are liens against the property assessed and have not the same security as a general municipal bond. For this reason a city which has reached its legal limit of municipal bond issues can still pay for work by special assessment.

The funds available from special assessments are limited only by the benefit to the property assessed. The amount of the benefit is difficult to fix and may lead to much controversy. It should not exceed the amount demanded for similar work in other localities, unless unusual and well-understood reasons can be given.

12. General Taxation.—In paying for public improvements by general taxation the money is taken from the general municipal funds which have been apportioned for that purpose by the legislative department of the municipal government. This method of raising funds for sewerage construction is seldom used unless the political situation is unfavorable to the success of a bond issue or special assessment and the need for the improvement is great. It is usually difficult to appropriate sufficient funds for new construction as the general tax is apportioned to support only the operating expenses of the city, and statutory provisions limit the amount of tax which can be levied.

13. Private Capital.—Private capital has been used for financing sewerage works in some cases because of the aversion of the public in some cities to the payment of a tax for the negative service performed by a sewer. Sewers are buried, unseen, and frequently forgotten, but knowledge of their necessity has spread and the number of privately owned sewerage works is diminishing because of the better service which can be provided by the municipality.

Franchises are granted to private companies for the construction of sewers only after the city has exhausted other methods for the raising of capital. The return on the private capital invested is received from a rental paid by the city, or paid directly by the users of the system, an initial payment usually being demanded for connection to the system. To be successful the enterprise must be popular and must fill a great need. This method of financing sewerage works is seldom employed as favorable conditions are not common.

Sewerage and Sewage Treatment

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