p585  Chapter XXXVII
The City Debt

The history of the finances of a great municipality ordinarily is a dry and uninviting subject. To it turn none but those who, for professional or technical reasons, have a special interest in an intricate subject. But New Orleans in this respect, as in many others, is exceptional. Her financial history is of exceptional interest. It includes the tentative financial projects of the earlier part of the nineteenth century, when the problems of municipal finance were not well understood. Then follows the period of the Civil war and reconstruction, from which the city emerged with resources greatly impaired, and carrying a heavy burden of debt. Since then its problem has been to meet the requirements of this debt without overwhelming the taxpayers and without impairing its credit at home and abroad. How this has been done is a record of which any city might well be proud.

The history of the public debt of New Orleans begins in 1822. In that year the State Legislature passed an act authorizing the municipality to issue bonds to the amount of $300,000.​1 This act was adopted on March 14. The city did not immediately take advantage of this permission. The act was amended in 1825 and again in 1827, and it was not till 1830 that the bonds were actually floated. Thus slowly and carefully did the early fathers of the city proceed with what they appear to have regarded as a very dubious experiment. But money was needed to pave the streets and provide some system of water supply. The bonds are somewhat quaintly described in the act as "city stock." They bore interest at 6 per cent per annum and were payable twenty years after date. On them appeared the signature of Denis Prieur, mayor, and C. Genois, recorder. One-half of the proceeds was, according to law, used for "paving and watering" the Faubourg St. Mary, and the remainder in "the square of the city," on such streets "as for their commercial importance the city council" might "deem proper."

This beginning was followed three years later by a financial experiment which, while in accord with practices at that time very generally approved in United States, hardly commends itself to our present-day judgment. This was the purchase by the city of stock in private corporations, and the flotation of bonds to pay for the investment. There are several such ventures on record in New Orleans between 1833 and 1854. The first instance relates to the acquisition by the city of $500,000.00 stock in the Commercial Bank. This bank was organized partly to carry on a banking business, but principally to operate a system "whereby the water of the Mississippi River might be conveyed into the city and its faubourgs, and into the houses of its inhabitants." It had a capital of $3,000,000, divided into 30,000 shares of $100 each. By its charter it was required to begin the construction of the waterworks within twelve months. The city's authorization for subscribing to the stock of this concern was Act No. 40 of 1833. The next instance of this sort was the purchase of an interest in the New Orleans & Nashville Railroad and in the New Orleans Drainage Company. The former  p586 corporation was organized in 1835, under an act of the State Legislature, to build a railroad from New Orleans to Nashville. Its capital stock was placed at $6,000,000, of which the municipality took $500,000, and issued a corresponding amount of bonds to pay therefor. The drainage company was incorporated in 1835 for the purpose of draining swamps, etc. The city was authorized by the State Legislature to subscribe for $350,000 of its stock, and did so, issuing a like amount of bonds to pay the purchase price.

In order to complete the record of these successive investments, we may here depart a little from the strict chronological order of this narrative and say that again, in 1854, the municipality bought stock in similar public-service corporations. The New Orleans, Opelousas & Great Western Railway Company, the New Orleans, Jackson & Great Northern Railroad Co., and the New Orleans & Pontchartrain Railroad Company were chartered in that year. The city subscribed for $4,000,000 worth of stock in these companies and, as usual, issued bonds to pay therefor. It is scarcely necessary to say that the city derived little real benefit from any of these investments. They were made on the assumption that, being organized to perform quasi-public works, it was the business of the municipality to support them. The last two cases might have proven profitable if the Civil war had not intervened to destroy the value of all such investments. The city parted with its stock in these corporations many years ago.

An interesting phase in the financial history of the city was opened in March, 1836, when the State Legislature passed an act dividing New Orleans into three separate municipalities, each with a recorder and a council of its own, but all under the jurisdiction of a joint mayor and common council. Each of the municipalities accumulated a debt. It therefore became necessary in 1850 to liquidate the debt of the city as a whole, and of these municipalities as such. Accordingly, a board of liquidators was created by Act 203 of the State Legislature of 1850. Of this board the mayor was ex‑officio president. The other members, six in number, were chosen two from each of the municipalities. The object was "to ascertain precisely the amount of the debt, and to apportion its justly" among the three municipalities. "The amount thus apportioned to each municipality," reads the act, "shall constitute the separate debt of each municipality, and shall, when added to the separate debts contracted by each municipality since the passage of the act of March 8, 1836, be known and denominated as the debts of Municipality Number One, Number Two and Number Three, respectively." The existence of this board was not prolonged. On March 5, 1852, the act establishing it was repealed. By the terms of the repealing act the members were required to hand over to a new body, the commissioners of the consolidated debt, "all jewels, monies, credits, papers, and books of any description then in possession of said board of liquidators." This action had been rendered necessary by the enactment of legislation abolishing the separate municipalities, and placing them and the City of Lafayette under one city government.

The new government went into operation on April 12, 1852. The Board of Commissioners of the Consolidated Debt of the City of New Orleans — to give it its full title — was made a part of the city machinery under an act passed early in that same year. It met for the first time on April 13, 1852, with the following members present: A. D. Crossman,  p587 mayor; O. DeBuys, comptroller; W. H. Garland, treasurer; W. P. Converse, chairman of the financial committee of the board of aldermen; L. H. Place, chairman of the finance committee of the board of assistant aldermen. Mayor Crossman was elected chairman, and Adolph Layet was made secretary.

The financial situation which the board had to consider was fairly complex. The debt contracted by the city prior to 1836 was known as the "old city" debt. The debts of the three municipalities contracted after 1836 were, as we have seen, identified by their respective numerical designations. The act annexing the City of Lafayette provided that the City of New Orleans should also assume the debt of that municipality. Thus there were five classes of debt. Taken collectively, these constituted the "Consolidated Debt of the City of New Orleans." Much of these indebtednesses was contracted in building wharves, school houses, and other obviously necessary public improvements. The amounts were on April 12, 1852, as follows: Old city debt, $2,923,760; First Municipality debt, $1,051,510.63; Second Municipality debt, $2,359,458.92; Third Municipality debt, $855,191.06; City of Lafayette debt, $504,825.65; a total of $7,694,746.26. The board proceeded to issue bonds with which to refund these debts. Of such bonds $5,534,000 were issued between April 12, 1852 and April 1, 1853; $3,300,000 of which total was sold at a premium of $18,207. The remainder was exchanged for bonds representing the outstanding debt, which in this way was reduced to $3,182,516.34.

Such was the situation when the Civil war began. Disastrous as were the effects of the struggle upon the South generally, they were particularly unfortunate in New Orleans. In 1861 the total assessed valuation of the city was $125,192,403. These figures diminished steadily from that time to 1865, when the assessment was $98,788,325. There was thus a loss of over one-fifth of the taxable wealth of the city in less than five years. The loss was principally in what is termed "personal property"; comparatively little in real estate. As an illustration, it may be said that the emancipation of the slaves struck from the assessment rolls one item of $6,609,210 — that being the valuation of the slaves owned by the people of New Orleans when the assessment was made. While the city's assets thus decreased, the expenses of carrying on the city government showed a remarkable increase. Under the reconstruction regime the expenditures of public money went on with incredible prodigality. Thus, by 1876, the bonded and floating indebtedness of the municipality had accumulated to an amount of more than $23,000,000. The tax rate which, in 1861, was 15 mills, gradually increased to 30 mills in 1876. The credit of the city was impaired so far that practically all bond issues floated at this time bore not less than 7 per cent interest, and one issue, put out in 1871, actually bore 10 per cent. Naturally, in the face of such conditions, the city was driven to some unusual and quite drastic measures in order to save itself from collapse. But it must be said, to the eternal credit of the city, that even in the darkest days of this event­ful epoch, there never was any serious idea of repudiating its legal obligations. Instead, ways and means were found to readjust its affairs to the ultimate satisfaction of its creditors and of the tax payers.2

It is impossible in the space here available to go very deeply into the various circumstances which contributed to the creation of the mass of  p588 debt which oppressed the city in this period. All that can be done is to list the various bond issues and other financial operations, which were responsible. There was, for example, the city currency. What this was may be inferred from a passage in a report dated May 5, 1868, in which Mayor Heath said: "The city currency is a subject which has painfully occupied a good deal of our attention of late. It is a paper currency which represents not precious metals, but rests solely upon the credit of the city. The present city government is not responsible for its introduction. We found it in circulation when we came into office. It was the offspring of the war. It originated with the council of 1861. It has its precedent — not a venerable one, though rather time-worn — in the shin-plasters of 1836‑1837; a convenient kind of money, but which soon flooded the community in such quantities that the Legislature was compelled to intervene and prohibit the over-issue of it. [. . .] No one doubts that a city as wealthy as New Orleans is, and possessed of her commercial prestige and advantages, will, sooner or later, fulfill all of her obligations."

In order to help the city meet its current expenses, the State Legislature passed Act No. 52 of 1868, authorizing the city to issue $1,000,000 in bonds. This came to be known as the "Million Loan." These bonds bore 10 per cent interest per annum, and the proceeds were to be used to pay the payrolls, and "warrants for all salaries and wages due the city employees, the police, school teachers, judgments against the city and costs of same, etc." Two other issues of bonds took place in 1869, the first, amounting to $3,000,000, being intended to fund the floating debt and liquidate the city's indebtedness. This loan, known as the 7 per cent bonds of 1869, was specifically for the purpose of converting the obligations of the city, known as the city notes and floating debt. The other emission was of bonds dated January 1, 1869, to run thirty years with annual interest at 5 per cent, and was for $1,393,400. These bonds were issued to the Commercial Bank in payment for the waterwork department which that corporation was operating.

The new city charter of 1870 contained provisions for the appointment of an administrator of the floating debt, whose duty it was to administer $3,000,000 worth of a new issue of bonds bearing 7 per cent interest, "said bonds to be sold provided they bring 75, and the proceeds applied to the payment of the floating debt, meaning judgments, warrants, registered bills, and city notes; the holders of these evidences of the floating debt to be paid at par." These bonds were duly issued, and added to the mounting aggregate of the municipal debt. In the same year an ordinance — No. 47, C. S. — was passed appointing the Bank of New Orleans fiscal agent of the city and administrator of the floating debt for the period of two years. The ordinance authorized the mayor to sign seven notes of $100,000, to be delivered to the bank in pledge as security for loans and advances which it was to make to the city; and moreover, a general mortgage on the city waterworks was executed in favor of the bank as a further security therefor.

In 1870 wharf bonds amounting to $709,000 were issued specifically to pay for improvements on the river front. The following year bonds bearing 10 per cent interest for an amount in excess of $1,000,000 were issued to pay the deficit and to satisfy old claims. In addition to this indebtedness the city had unpaid loans aggregating over $600,000. In 1872 it was necessary to issue $4,000,000 gold seven per cent bonds, to pay the floating debt, the deficit, and to exchange for matured railroad  p589 bonds, and pay for drainage canals and protection levees. Moreover, street assessment bonds were issued amounting to $291,000. Finally, in 1874, the annexation of the suburb of Carrollton compelled the city to assume its debt of $194,000.

This is a dreary catalogue but it serves to show the successive steps by which the city debt was piled up during these troubled years. No community, however intrinsically rich, could long withstand the burden thus placed upon it. Real estate was almost without marketable value, commerce was declining, industries were paralyzed, and all other classes were sinking under the load of public indebtedness. Taxations amounted to confiscation.​3 On December 1, 1874, the City of New Orleans defaulted on the interest on its bonded debt. A few months later it was computed that the city debt aggregated the sum of $22,000,000, bearing an average annual interest of about 7½ per cent. It was obvious that some drastic remedy must be applied at once if the city was to be saved from complete financial collapse. Fortunately at this critical moment there was at the head of the financial department of the city government a man who lacked neither courage nor resource. This man was Edward Pillsbury. In August, 1875, he addressed to the city council a communication in which he outlined a plan for the liquidation of the entire city debt, principal and interest. As he said, the solution required the abandonment of "the ordinary forms of finance as unequal to the situation" and obliged the city "to seek other and perhaps novel means of meeting the exigency." His was that known thereafter as the "Premium Bond Plan."

The main proposition in the plan, which was ratified by the Legislature under Act 31 of 1876, was to convert the bonded debt of the city into "premium" bonds, redeemable in from one to fifty years, and bearing interest at the rate of 5 per cent per annum, plus certain prizes. These new bonds were to be one million in number, of the denomination of $20, divided into 10,000 series of 100 bonds each, of which a certain number was to be redeemed every year. To determine the particular series which should so be redeemed, all the numbers of the bonds were put into a receptacle — where they have ever since remained — and four times a year, on January 31, April 15, July 31, and October 15, as many numbers as there are series to be redeemed are drawn out of the wheel by a blindfolded orphan boy. Twice a year, on January 15 and July 15, these drawn series participate in a "premium" drawing, at which 1,176 prizes, ranging in value from $20 to $5,000 and totaling $50,000, are distributed. All bonds which do not win any special prizes are paid at their par value, plus interest since July 15, 1875. The interest is not compounded, but, computed at 5 per cent per annum since 1875, gives 50 cents every six months, and, therefore, the minimum value of each bond continues to be greater with every prize drawing until 1925, when the last of these bonds will be drawn, at which time the minimum value of each bond will be $70.4

This plan, which deferred the payment of the interest on the city debt over a long period of years, was exactly what the situation demanded. Moreover, the element of chance associated with it recommended it to a large number of the holders of the outstanding city obligations, who consented to exchange their old securities at par for this new bond. But there were also bondholders who refused to avail themselves of the Pillsbury  p590 plan. To them the prospect of surrendering securities which yielded them semi-annual interest — a fixed income at regular intervals — for another on which no interest would be collectable till an uncertain date in the future — made no appeal. Hence, in spite of earnest efforts to carry out completely the Pillsbury plan, only about $13,500,000 of the "premium" bonds were actually issued, and nearly $7,000,000 of the old bonds remained outstanding, continuing to bear their high rate of interest. This comparative failure of the Pillsbury plan implies no criticism of its ingenuity. It was approved by the leading financiers of the city. They patriotically made every effort to induce the creditors to fall into line. An open letter which was published in the newspapers at the time indicates their point of view:

This address was signed by a committee composed of John G. Gaines, Samuel H. Kennedy, J. H. Oglesby, August Bohn, and George Jonas, and several hundred other prominent business men and taxpayers.

The partial failure of the premium bond plan resulted in the city getting only a fraction of the relief which it was hoped would result, but the reduction in 1876 of both the assessment and the tax rate may fairly be imputed to the operation of the scheme. However, the litigation which arose between the city and the holders of the old, and in some cases past-due, bonds, was a source of embarrassment for a long time. The constitutionality of the premium bond act itself was involved. For a  p591 time the value of the bonds fell to less than half their face value. The matter was finally taken to the State Supreme Court, which handed down a decision affirming the legality of the bonds. After this decision, the value of these securities rapidly rose. In the interval, the city received considerable sums of money from the sale of franchises to the New Orleans City Railroad, the St. Charles Street Railroad Company, and from the proceeds of drawn premium bonds. This money was by law dedicated to the public debt. The city therefore took advantage of the low prices at which the bonds were selling to go into the market and covertly purchase $3,567,360 of them, at a price which averaged about one-third of their face value. These bonds, together with those which were never issued, continue to participate in the drawings, and it happens from time to time that the city has the singular experience of winning some of its own prizes.

The year 1880 brought to a close the haphazard system of public finance which had been followed so long in New Orleans, with the disastrous effects described in the foregoing pages. Since that year, the bonded indebtedness of the city has been under the control of a self-perpetuating board created by the Legislature of the State of Louisiana. The act by which this board was created was subsequently incorporated into the state constitution. Its enactment served at once to restore confidence among the city bondholders. The object which this legislation had in view was to call into existence a body of representative business men who would formulate and carry out a sound financial plan, whereby the entire bonded debt of the city could be cared for in a manner absolutely free from political consideration, in order that the city's credit might be re‑established. This body constitutes the so‑called Board of Liquidation of the City Debt. "It may safely be said," observes Mr. Hecht, in his paper on the municipal finances of New Orleans, "that the creation of this Board of Liquidation really constituted the turning point in the city's financial troubles, and the splendid and unselfish work done by this body of men from the date of the creation of the board to the present time, cannot be too highly praised."

This board is a permanent syndicate body of six citizens, with the mayor, city treasurer, and city comptroller ex‑officio members. In the title of the act creating this board, which occupies an anomalous position in the city government, inasmuch as the continuing members control the policy of the board, the purpose for which it was established was stated as being to liquidate the indebtedness of the City of New Orleans and to apply its assets to the satisfaction thereof. At the meeting held on June 3, 1880, the board organized, with Joseph H. Oglesby, a leading local banker, as president. The other syndicate members were E. A. Palfrey, John Phelps, Henry Gardes, A. J. Gomila and S. H. Kennedy, all prominent business men. On June 15, 1880, the board elected T. Wolfe, Jr., to be secretary and B. C. Shields to be assistant secretary. Both of these gentlemen had previously held similar posts for many years under the commissioners of the Consolidated Debt of New Orleans. Mr. Wolfe remained as secretary to the new board till his death on January 18, 1917, when he was succeeded by Mr. Shields.

Upon the death of Mr. Gomila in 1885 he was succeeded by J. A. Shakespeare. Mr. John Phelps died in 1886 and was succeeded by R. M. Walmsley. On the death of Mr. Oglesby in 1888 he was replaced by J. C. Morris, as member, while the presidency of the board, thus made vacant, was filled by the election of R. M. Walmsley. Mr. Gardes  p592 resigned in 1888 and was succeeded by John T. Hardie. When Mr. Kennedy died in 1893 his place was taken by W. B. Schmidt. The death of Mr. Hardie in 1895 led to the election of W. T. Hardie; and Mr. Shakespeare's death in 1896 made necessary the addition of W. B. Stauffer to the board. Mr. Palfrey died in 1901 and was succeeded by A. Brittin. Charles Janvier was chosen a member of the board in 1901 on the death of W. M. Schmidt. Mr. Morris died in 1904 and was succeeded by Ashton Phelps. The resignation of Mr. Janvier in 1906 resulted in the election of C. J. Theard to the board. On the death of Mr. Walmsley in 1920 the presidency becoming vacant, that office was filled by the election of Mr. Brittin, and Mr. Walmsley's place as a member was filled by the election of Rudolph S. Hecht. In succession to Mr. Phelps Mr. Janvier was made a member of the board for a second time. Thus the chain of member­ship is complete from the beginning of the board's existence to the present time, with the exception of the city officials, who, being ex‑officio members, automatically retired from member­ship when their terms expired.

Under the act of 1880 by which the board came into being, it was intended that it should retire and cancel the valid debt of the city, except premium bonds, by refunding it into an issue of consolidated 4 per cent bonds. It was, however, soon found that the holders of the city's outstanding obligations bearing 6 and 7 per cent had little desire to exchange them for the proposed issue at a lower rate of interest. Another plan was therefore evolved. In 1881 a special committee was appointed to "ascertain as nearly as possible the valid indebtedness of the City of New Orleans [. . .] and to enter at once into negotiations with the creditors of the city [. . .] and present a just and equitable plan of settlement." The report of this committee, presented in February, 1882, appraised the debt at $24,000,000. As a result of its investigations Act 52 of 1882 was passed by the State Legislature, by which all valid outstanding bonds, other than premium bonds, were extended for forty years from January 1, 1883, at 6 per cent interest, but the privilege was reserved to the city to call in bonds so extended for payment at par after the year 1895 upon three months' notice of its intention. The holders of the old bonds, with comparatively few exceptions, agreed to the proposed extension. There were, however, left outstanding about $100,000 of 7 per cent bonds of 1872, and a number of the consolidated bonds of 1852. The former are still outstanding, but the latter finally fell due in 1892 and were paid and refunded into 4 per cent bonds under legislation enacted subsequent to the date under consideration.

With the election of Mr. Walmsley to the presidency of the board the real achievements of the board may be said to have begun. In preceding years the board had, as it were, been merely gathering up the loose ends of the city finances and preparing the way for the latter substantial achievement. With Mr. Walmsley's accession, however, came new methods of financing, which were destined within comparatively short time to produce results scarcely anticipated by the members of the Legislature which passed the act creating the board. The debts bearing 6 and 7 per cent were now approaching maturity. It was also necessary to pay the judgment rendered against the city in the celebrated Gaines case. The board therefore went before the State Legislature in 1890 and secured permission to issue $10,000,000 of constitutional bonds of the City of New Orleans, bearing 4 per cent interest per annum, and dated  p593 July 1, 1892, for the purpose of refunding the city debt. But in the year 1894, perceiving that the financial situation was such that the refunding plan could not continue to be carried on success­fully, the board, upon the advice of President Walmsley, secured from the State Legislature an authorization to pay a commission to brokers negotiating the sale of the bonds, which inducement was sufficient to cause the prompt disposal of $4,503,000 of the bonds — sufficient to cover the indebtedness of the moment, excepting the premium bonds. A like amount of the extended bonds bearing 6 per cent interest per annum, the maturity of which was originally extended for the period of forty years from the 1st of January, 1883 ("provided the city shall have the right to call in said bonds so renewed or extended for payment at par after the year 1895"), were called in for redemption and paid in anticipation of their callable date.

Through Mr. Walmsley's personal influence with the stockholders of the Louisiana National Bank the first of the refunding series (constitutional bonds) was success­fully put through.

In the early '90s for the first time since the Civil war city 4 per cent bonds sold at par.

A few years later another portion of the 4 per cent constitutional bonds were sold to redeem certified bonds and certificates, all of which were bearing 6 per cent interest. The final sales of the constitutional 4s were made at from 105.01 to 107.25, the price afterwards going as high as 110.

The refunding of all the old issues of bonds by the issuance of the constitutional 4s paved the way for later issues of other classes of bonds. In the year 1898 the city issued $233,000 of floating debt bonds bearing 4 per cent and having fifty years to run, which were authorized for the purpose of taking up certain floating debts of the City of New Orleans. The city was supposed to turn over to the Board of Liquidation certain back taxes from the years 1879 to 1895 for the purpose of redeeming these bonds. As a matter of fact, these back taxes never became available for this purpose. The bonds were actually secured only by the good faith of the City of New Orleans. However, the Board of Liquidation, out of free funds in its hands derived from interest received from daily balances in bank, has taken care of the interest when due on these bonds, and has purchased and redeemed $15,000 of the bonds themselves.

The finances of New Orleans were thus put upon a very satisfactory basis. There appeared to be no further need of this sort of work, when upon the initiation of Mr. Brittin a conference was called of the members of the city council, of which he was president, for the purpose of considering matters connected with the drainage and sewering of the city. This meeting was held in the mayor's parlor on November 17, 1898. A committee was appointed by this meeting, with Mr. Brittin as chairman, which ultimately adopted his views and formulated a plan destined to result eventually in the great system of drainage and sewerage that is now being carried to completion in the city. It thus became necessary to float additional bonds to pay for the contemplated improvements. E. H. Farrar, a prominent attorney, volunteered to draw up the necessary legislation. He received no fee for very onerous and responsible work. This legislation was submitted to the Legislature and resulted in the passage of a constitutional amendment authorizing the City of New Orleans to issue $12,000,000 of public improvement bonds bearing 4 per cent interest to be devoted exclusively to the  p594 installation of a modern system of sanitation, including waterworks, sewers and drainage canals. In order properly to secure these bonds the constitutional amendment capitalized the 1 per cent tax levied under the act of 1890, and, more especially, that part of the surplus which under the original law was transferred to the permanent public improvement fund, and which had of course become larger from year to year as the assessment increased. That there should be no question about the security of these new bonds and to insure their advantageous sale, the citizens of New Orleans voted an additional special tax of two mills. At the same time the 1 per cent debt tax, which was originally only voted until 1942 (when the last constitutional 4s would be paid), was extended until 1950, that being the date of the ultimate maturity of the public improvement bonds. The entire issue of $12,000,000 was sold at a premium of $46.19 per bond.

Within a few years, however, it became apparent that the funds realized from the sale of the $12,000,000 public improvement bonds would be insufficient to complete the proposed installation. The assessment of the city had, however, increased notably. In 1906 the figures stood at $204,585,967, as against $139,235,101 only six years previously. It was therefore possible to capitalize still further the surplus remaining out of the 1 per cent debt tax and the special two-mill water, sewage and drainage tax. Looking to that end, the State Legislature passed Act 19 of 1906, authorizing the city to issue a total of $8,000,000 "new public improvement bonds." These bonds bore 4 per cent interest, and were intended to defray the expenses connected with completing the water, sewage and drainage system. This act was subsequently incorporated in the state constitution. Under this amendment the surplus remaining out of the 1 per cent debt tax and the two-mill sewage, water and drainage tax — after meeting, first, the premium bonds; secondly, the $10,000,000 constitutional 4s; and, thirdly, the $12,000,000 public improvement 4s — was assigned towards the payment of the principal and interest of these new bonds. Although these bonds are to run till 1942, the Board of Liquidation has the option, after 1928, after providing for the interest and sinking fund required in connection with previous bond issues, of devoting the surplus to the retirement of these new bonds by lot. In all probability this privilege will be exercised to retire the last of these bonds long before the date of their ultimate maturity. But, anticipating the remote possibility that the city should not be in a position to provide a sinking fund for the retirement of these bonds by 1942, the amendment stipulates that all of these bonds remaining unpaid at that time shall be extended for a period of twenty years, with the same interest and the same right to call, and the 1 per cent debt tax will in that event be extended also, with the further condition, that from 1950 on the entire proceeds of this tax shall be used to pay interest and principal on such of these bonds as may then be outstanding.

The remaining bond issues and the other recent financial operations of the board can be only very briefly described here.

The building of the new courthouse in New Orleans occasioned the flotation of another issue of bonds. These were issued under an act of the State Legislature passed in 1904. They bear 5 per cent per annum. In all, $750,000 of these bonds were issued. The act requires the city to appropriate out of the annual reserve fund $41,000 to be turned over to the Board of Liquidation, to be applied to the payment of the semi-annual  p595 interest on these bonds, the surplus remaining, if any, after paying such interest, to be utilized in the retirement of the bonds, calling them in the reverse order of their issue. Under this provision $40,000 of these bonds have already been retired.

Two years later the Legislature authorized another issue of $200,000 in bonds to pay back salaries due certain school teachers and portresses for the years 1885‑1887. Of these bonds $198,000 were issued at 4 per cent. As one-half of the surplus of the 1 per cent debt tax was under the law payable to the public schools, the Board of Liquidation was empowered to hold out of that fund money sufficient to pay the interest on these bonds. The act also required the board to set aside, beginning in 1917, sufficient funds to retire the entire issue on or before January 1, 1927, but in 1916 a fresh constitutional amendment was carried whereby these bonds were ordered paid immediately, which was accordingly done, and these bonds are no longer to be listed among the city's liabilities.

In 1914 the beautification of Audubon Park necessitated the issuance of bonds to the amount of $100,000 at 5 per cent per annum. These bonds were secured in the same manner as the courthouse bonds — that is, the city is required to set aside out of the reserve fund annually the sum of $20,000, of which $5,000 per annum during the first three years and $6,000 annually thereafter as long as necessary shall be paid to the Board of Liquidation to form a special fund to pay the semi-annual interest, while the remainder is to be applied to the gradual retirement of the principal. The entire issue was floated, but the board has been able to retire $2,000 since that date.

The most important financial operation undertaken by the Board of Liquidation in recent years was the bond issue floated under the authority of Act 4 of 1916, passed by the State Legislature and subsequently incorporated in the state constitution. This issue was necessitated by the accumulation of various indebtedness, particularly that due to the anticipation of revenues for public improvements. To meet these obligations the board was empowered to issue $9,000,000 serial gold bonds bearing 4½ per cent interest per annum, but it has been found necessary to sell so far only $4,500,000. The one-half of the surplus of the 1 per cent debt tax previously dedicated to the public schools has, by the act, been set aside for the payment of the principal and interest of this bond issue. It is provided, moreover, that if for any reason this fund should ever prove insufficient to take care of these bonds, the city shall levy a special tax upon all taxable property adequate to pay both principal and interest. The revenue thus lost to the schools is compensated by a direct tax instituted for their benefit by the amendment to the constitution.

The serial maturities of these bonds, were so fixed that the amount of bonds retired each year increases as the amount of interest decreases: in other words, the total amount required to pay principal and interest will be about the same annually, but the total dedicated to the former purpose will augment in proportion as the latter diminishes. Under the act all matters connected with the issue of these bonds are placed under the control of the Board of Liquidation, which, therefore, is perpetuated in office until the last one of the bonds shall have been paid.

The board possesses the authority to call in and refund any of the existing bond issues whenever it finds that course possible or advantageous after the bonds attain their callable date. While nothing of the sort can be done until after 1928, at the earliest, still the law is  p596 broad enough and looks far enough ahead to invest the board with the right to issue bonds for refunding purposes, if by so doing it deems it possible to save the taxpayers' money or otherwise improve the financial condition of the city. This important privilege, which the board derives from the constitutional amendment of 1916, goes another step forward by providing for the financing of any additional improvements which the city may undertake. It is foreseen that the growth of New Orleans will be rapid and that inevitably it will become necessary to expand the municipal utilities in various ways. But while the board has the right to issue bonds to provide the money necessary for these purposes, the city is restrained from indulging in any extravagance in this direction by certain definite and very reasonable provisions. It is highly desirable that the amount of the debt should not be increased beyond the limits which will be regarded everywhere as safe under all circumstances.

These restrictions, therefore, include the stipulation that, while the city can issue bonds to the amount of $500,000 at any time under joint resolutions by the Board of Liquidation and the Commission Council to meet such emergency, such as fire, flood or pestilence, no other bonds can hereafter be floated without submitting the proposition to the vote of the taxpayers of the City of New Orleans. Only after a majority both in number and amount of taxable property has signified its approval can the projected issue be made, and not even then, unless the total outstanding debt of the city is less than 10 per cent of the total assessed valuation of its property. As the city's assessments in 1917 were $255,476,976, and have grown steadily ever since, the present bonded debt is well within the limit. At the present moment, if so desired, the city could therefore issue further securities under the authority given by Act 4 of 1916.

In closing this rapid sketch of the financial history of the city, it may be well to append a brief explanation of the "reserve fund" and the "1 per cent debt tax" so frequently mentioned in the foregoing pages. The city now levies a 6½‑mill "alimony" tax, a 3½‑mill school tax, a 1 per cent "debt" tax, and a 2‑mill "sewerage, water and drainage" tax. These four taxes are separate and distinct from one another. Of the income from the 6½‑mill tax, the city spends 80 per cent for general purposes, the remainder constitutes the "reserve fund." This fund is augmented by 20 per cent of the income from other sources, such as fines, fees, etc. The reserve fund, as such, was available for public improvements only. In recent years the fund has averaged about $800,000 per annum. Out of this total the city is obliged by law to allot $41,000 to the Board of Liquidation on account of the courthouse bonds, $20,000 towards the Audubon Park bonds and $15,000 to the City Park fund. For some time the remainder was practically all absorbed in the payment of principal and interest due semi-annually on the "anticipated revenues" already expended. The "anticipated revenues" represented sums spent by the city some years in advance of the collection of its alimony under a system popular with American municipalities whereby the payment for public improvements was transferred to the future. Recently, however, the Board of Liquidation undertook to care for these debts also. Thus the reserve fund, properly so called, has become largely available for other purposes.6

 p597  Following is a statement by years of the city debt from its inception to the present day:

The following table shows the state of the bonded debt of New Orleans on December 31, 1919:

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The Author's Notes:

1 Nolte, "Fifty Years in Both Hemispheres," Chaps. X, XI.

2 R. S. Hecht, "Municipal Finances of New Orleans, 1860‑1916," pp4, 5.

3 Inaugural message of Mayor Leeds, November 30, 1874.

4 Hecht, "Municipal Finances of New Orleans," pp5, 6.

5 Quoted in Hecht, op. cit. pp8, 9.

6 Horace P. Phillips, "The Bonded Debt in the City of New Orleans," Louisiana Historical Quarterly, October, 1920, 396‑611.

7a 7b April 1.

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