City's Financial System

Discussion of the city's finances is still rife about the city and as apparently much misinformation is still afloat about the matter the Argus may be pardoned for devoting a little space to an elementary discussion of the system contemplated by the charter and which has been in force in this city for very many years.

The provision of the charter which has kept Ann Arbor city from a heavy bonded indebtedness is found in section 186 of the present charter. This provision was not new when it was placed in the present charter in 1889. It was copied from the charter which preceded it and has been the charter law of the city for approximately fifty years. This is the section of the charter (Sec. 186) which prevents the city going in debt. After providing against the issuing of bonds without first getting the permission of the legislature and the people, it continues: "but the common council may allow just claims against the city and may issue orders therefor on the treasurer, or payable on presentation from any moneys then in the treasury on the first day of February thereafter; but such second named class of orders shall not in any fiscal year exceed the aggregate taxes levied in such year for the payment of the same."

This contemplates what has been the practice since the city was incorporated, that the council must not allow more claims, or issue more warrants on the treasury in any one fiscal year than there are taxes levied in that year. Under the practice of the city during all these years and what is clearly contemplated in the charter, there must be no overdraft on February 1. This is the end of Ann Arbor's fiscal year. There is absolutely no provision which prevents the council from allowing claims or the mayor and clerk signing warrants if there is no money in the treasury unless the warrants allowed should exceed the aggregate amount of taxes levied that year.

Hence it is that the Argus asserts that the position of the mayor that he will sign no warrants until there is more money in the treasury, or in other words, until he is permitted to issue bonds, is absolutely untenable and indefensible. And if the council will only pass its bills with eight votes the mayor will quickly be shown how untenable is his position.

There are two entirely separate systems under which a city can be run without rolling up a floating debt, growing larger as the years roll on. One may be called the big surplus system, that is, a system which provides that as soon as there is no money in the treasury the city must stop work. This would mean that at the time city taxes are collected, about the middle of the fiscal year, there would be a tremendous surplus in the treasury. The other system is the one in use in this city, the system under which no more money is spent in any one fiscal year than the aggregate of taxes levied in that year. In other words, each year must take care of itself. The money may be spent before or after it is collected, but more money must not be spent in any year than is levied.

The mayor has sought to change the financial system by his dictum and if permitted to issue bonds there is nothing in the charter to prevent his changing his dictum back to the other system, spending all the money raised by bonds and in addition all the money levied in taxes in this fiscal year, and leaving the city next February in the same shape it is today, excepting that it has a heavier bonded indebtedness. There are arguments in favor of the mayor's system as well as arguments against it, but what the Argus contends is that it is not the charter system. The argument for it is that it would prevent the payment of interest on overdrafts for a few months in the year. The argument against it is that too large  a surplus in the at any one time would beget extravagance at that time.

Why should ten-year bonds be issued to take up a $19,000 overdraft as of July 1, which will be taken care of by the taxes collected commencing July 15?

Another point should be noted. The charter in order that there may be no doubt as to the amount of city warrants that may be issued during any one fiscal year does not limit the amount to the taxes collected in that year, but expressly limits it to the amount of "taxes levied." The amount of taxes levied is known by June, long before there is opportunity of approaching the danger line. It can be told to a penny. The amount of taxes that will actually be paid in is not so definitely known, but whether paid in then or not the city will get it some time. In other words what the charter contemplates is that each years taxes shall take care of each year's expenses.