How Is The Road?

ARIZONA HIGHWAYS

will equal or exceed the value of the work secured.

Before attempting to devise a rational plan of highway finance, we should have a clear understanding of the magnitude of the task of highway improvement and a knowledge of what has been and is being done to finance the improvement. I shall try, therefore, to picture the problem from both angles, omitting as much as possible of the complicating details and drawing only the lines that are necessary to an appreciation of the general form.

First, let us examine the proportions of the physical job. We find that there are approximately 3,016,000 miles of public rural roads in the United States. Of this total, in 1928, there were 306,000 miles that were included in the state highway systems and 2,710,000 miles were under the jurisdiction of county and other local officials.

In 1921, the year of the passage of the Federal Highway act, the state systems included only 203,000 miles, which was practically equivalent to 7 per cent of the existing total mileage, the limit that was established for the original Federal aid system. Since 1921 there have been taken into the state systems an additional 103,000 miles, and the extent of these systems at the beginning of the present year was 10.2 per cent of the total road mileage.

The proportions of the state highway program have thus been increased by 50 per cent in a period of seven years, the annual addition averaging nearly 15,000 miles. In this period of seven years only three states have failed to increase the mileage of their state systems; 11 have added less than 500 miles; 9 have added between 500 and 1,000 miles; 7 have added between 1,000 and 2,000 miles; 10 have added between 2,000 and 5,000 miles; and 8 have increased the size of their systems by more than 5,000 miles.

The percentage of the entire road system embraced within the state systems on December 31, 1928, varied from a minimum of 5 to a maximum of 36; the minimum in Oklahoma and South Dakota, the maximum in Rhode Island. Of the three states that have made no addition to their systems, two, Missouri and Oklahoma, still include considerably less than the average percentage of the total mileage; the third, Vermont, has a system which includes 28 per cent of the total road mileage, next to Rhode Island the highest percentage in any state.

Of the eight states that have added more than 5,000 miles in the seven year period, two - Illinois and Kansas - still include less than the average of 10.2 per cent, the former 10.1 and the latter only 6.7 per cent. Three of this group - Arkansas, Mississippi and Montana - still include only slightly more than the average percentage, the figures varying from 11.7 to 12.2 per cent. The other three - Kentucky, Louisiana and New York - by their large additions have increased their respective ratios of state system to total mileage to 18.7, 27.3 and 17.5 per cent respectively.

Additions to the state highway systems have been made either by legislative enactment or by action of the state highway departments under authority vested in them by the legislatures. There can certainly be no reasonable objection to the placing of a greater mileage of the more important roads under the supervision of the state agencies; on the contrary, such transfer from local control is distinctly desirable and must eventually be made. But addition to the state program without corresponding increase of state revenue is not likely to produce a satisfactory result and is decidedly unfair to the state agency which must shoulder the responsibility.

That is precisely what has been done in too many instances; and a study of the mileage and condition of all of the state systems in conjunction with the revenues available for their improvement and the demand for improvement as indicated by the motor vehicle registration, must lead to the inevitable conclusion that expediency and enthusiasm have been more influential than sound reason in determining the program of state improvement.

Certainly, when we find two adjoining states of similar area, road mileage and motor vehicle registration; one with nearly 19 per cent of its total mileage in the state system of which but 45 per cent is surfaced and revenue which will permit an expenditure equivalent to only $1,200 per mile of the system and the other with only 9 per cent of its road mileage in the state system of which nearly 80 per cent has been surfaced and annual expenditures equivalent to nearly $3,300 per mile of the system; certainly with these facts before us we are justified in concluding that reasons other than those of sound business economics have been responsible for the difference.

To complete the picture of the physical problem, let us add that of the 306,000 miles in the state system in 1928, over 113,000 miles, or 37 per cent, were still unsurfaced; 125,000 miles, or 41 per cent, were surfaced with sand-clay; gravel or macadam; and 68,000 or 22 per cent, were improved with surfaces of bituminous macadam or better. In 1921, of the 203,000 miles then included in the state systems, only 41 per cent was surfaced, In 1928 we find surfaced 63 per cent of the 306,000 miles to which the systems of the states had grown. But there still remains unsurfaced 113,000 miles or almost as much as the 118,500 miles that were unsurfaced in 1921.

When it is considered that there were 78 motor vehicles for every mile of the enlarged state systems in 1928 and only 50 in 1921 for each mile of the smaller systems, it will be appreciated that the job of the states is still far from finished.

Of the 2,710,000 miles of local roads, 433,000 miles or 16 per cent had been surfaced by the end of last year; but of this surfaced mileage only a little over 34,000 miles, or 8 per cent, was of bituminous macadam or better, a figure that may be compared with the 22 per cent of similar improvements in the state highway system.

Viewing the roads of the country as a whole, we find that at the end of the year 1928 there was a total surfaced mileage of 626,000 miles, of which 193,000 or 30 per cent, were in the state systems; and that of the surfaced total 102,500 miles, or about 16 per cent, were improved with surfaces of bituminous macadam or better. Of the surfaces of this higher class, 66 per cent were in the state systems.

Turning now to the financial aspect, we find that the total expenditure for the improvement of rural roads in 1928 was, in round figures, $1,660,000,000, of which $828,000,000 was expended by the state highway departments and $832,000,000 by county and other local authorities.

To defray these costs there was available to both state and local authorities income which in varying amounts was derived from the same three general sources, namely, taxes on real property, taxes on motor vehicles and their fuel, and the sale of bonds and notes. In addition, the states drew a portion of their income from Federal aid. A portion of the income drawn from these sources by the states was transferred to the counties and other local units. A portion collected by the local authorities was transferred to the states. Of these transfers it is difficult to ascertain the original source. There are also certain amounts derived by appropriation and certain miscellaneous items the source of which is not entirely clear, but these may be considered as coming in the main from the taxation of property. With this explanation it is possible to classify the $849,000,000 of income to the states in 1928 approximately as follows:

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From the sale of bonds and notes, 14.3 per cent; from property taxes 7.9 per cent; from motor vehicle fees 30.5 per cent; from gasoline taxes 27.6 per cent; from funds transferred by local authorities 10.2 per cent; and from Federal aid 9.5 per cent.

The income of $835,000,000 accruing for local road purposes in 1928 may be similarly classified as follows: From the sale of bonds and notes, 18.0 per cent; from property taxes 65.9 per cent; from motor vehicle fees 6.0 per cent; from gasoline taxes 6.4 per cent; and from funds transferred by the state 3.7 per cent.

The income of the states, now $849,000,000, was in 1923 only $467,500,000, but little more than half the present sum. Of the smaller sum collected in the earlier year the several sources contributed as follows:

From such an analysis several pertinent facts appear. First, with respect to state highways it is evident that the major source of income is taxation of the motor vehicle and its fuel. The sum of $493,000,000, or 58.1 per cent of the total state highway income was allotted from these sources to the states in 1928. Five years previously the same sources contributed to the state highways only $163,000,000; and the increase in revenue from these sources alone, amounting as it does to $330,000,000 for the year, accounts for nearly all of the increase of $381,800,000 in annual state highway revenue during the 5-year period.

Of the total revenue collected in 1928 from motor vehicle fees and gasoline taxes, a portion was used to defray the expense of collection and administration, a portion was allotted to county and local road purposes, and various portions were devoted to purposes other than rural highway improvement, principally to schools and city streets. If all of this revenue, after deducting the collection and administrative costs, had been devoted to the improvement of state highways, the total of $612,000,000 would have paid three-fourths of the state highway bill of 1928.

ARIZONA HIGHWAYS

It should be noted here, however, that the trend in the use of these funds is not toward their concentration upon state highways but rather in the opposite direction. In 1921 local highway authorities received 28 per cent of the sum allotted to highways, and the trend in the intervening period has been more or less steadily upward. In 1928 there were allotments from the gasoline tax revenues to purposes foreign to rural highways of some 6 per cent of the total collections, and there is active demand particularly by the cities for the diversion of far greater sums from this source to city streets.

A second fact that stands out from the analysis of the 1928 highway income is that the states depend to only a small extent upon property taxes for the support of state road improvement. It may be assumed that the 7.9 per cent of the total state revenue drawn from this source is fairly representative of the general benefit derived by all property owners from the improvement of the state systems. The counties, on the other hand, obtain from this source nearly two-thirds of their total income.

It is interesting to note that the states receive from the counties and other local units on the one hand and from the Federal Government on the other substantially the same amounts and percentages of their total income. Since 1923 the amounts received from the two sources have varied but slightly and have constituted steadily decreasing percentages of the state income as the motor vehicle revenues have increased in amount. In 1923 the sum received from the local units was 14.3 per cent of the total receipts of the states; that received from the Federal Government was 15.5 per cent of the total state income.

The item to which I wish to direct your special attention, however, is the portion of this Highway income, state and local, that is derived from the sale of bonds and notes. Of the total state income in 1928 the sum derived from this source was 14.3 per cent. In 1923 the corresponding percentage was 18.9, and the trend in subsequent years has been generally downward to the present level. The 1928 percentage represents an actual sum of approximately $121, - 500,000 drawn by the states from this source, which may be compared with the sum of $150,200,000 or 18 per cent of the total local highway revenue raised by the sale of bonds in the same year.

JANUARY, 1930

We have heard so frequently the solemn warning to "pay as you go," and so often have we listened to the tale of woe that impends for htose profligate commonwealths that issue bonds, that I fear we may come to believe that there is something peculiarly virtuous in the direct investment of current revenue, and something unspeakably vile in the capitalization of income to create facilities capable of producing greater income.

When fanatical advocates of the pay-as-you-go plan utter their dire prophecies of the disaster that must follow upon the heels of a borrowing policy, I am constrained to doubt by the knowledge of the remarkable benefits that have attended that policy in the states that have made the greatest advances in the improvement of their highways. These gentlemen would have us believe that there are certain commonwealths whose people, preserving the ancient American ideals of honesty and frugality, rigidly refrain from the borrowing of capital for road improvement as a matter of principle. To believe them is to believe that these homely ideals continue to reside in just one of our 48 states, for there is just one the state of North Dakota, in which thus far there has been no resort to bond issues, either for state or local road improvement. If state bond issues alone are immoral, then there are 17 sovereign states that are free of taint, but the other 31 stand convicted by their records.

"Neither a borrower nor a lender be," runs the old adage. It is the rule of finance to which the pay-as-you-go advocate would have us adhere; but if it is really an economic sin to borrow capital for public works, then it must be none the less sinful when the borrowing is done by counties than when it is done by states. To fix the measure of guilt that is to be attributed to the people of each one of 47 guilty states, therefore, we must examine the borrowing record of both the counties and the states. Suppose we do so. We find, as I have said, that there are 31 states which at some time or other between 1894 and 1928 authorized and issued state highway and bridge bonds. The total of such authorized issues is $1,391,216,500; but the total thus far issued, including refunding securities, is $996,226,100, and of this amount there had been retired by the end of the fiscal year 1928, $103,746,670, leaving an outstanding indebtedness of $892,479,430. The fact that there were sinking fund accruals which would still further reduce the debt by over $85,000,000 is scarcely worth mentioning; but I should like to point out in passing that this state highway debt of the 31 states is approximately equivalent to one year's expenditure for state highways by all of the states.

JANUARY, 1930 ARIZONA HIGHWAYS Page Fifteen

Now let us examine the record of the counties and other local units of government. We have no complete record of the bonds authorized; nor have we a compilation of any sort of later date than 1926. For that year we have a record of the county and local highway and bridge bonds then outstanding, and the total in 45 states was $1,386,338,383, a total 55 per cent greater than the outstanding local debt for highways or bridges. They were New Hampshire, Vermont and North Dakota, and only the last was also free of state indebtedness. If, as we are frequently told, there are states the people of which refuse as a matter of principle to incur a public debt, then presumably we should find them among the 17 that have thus far incurred no state debt. We already know that in all but one of these there have been issues of local bonds; but perhaps these have been more occasional lapses from rectitude. Let us see. What we find on examining the record further is that in these 17 states that have issued no state bonds the outstanding local issues in 1926 amounted to $657,072,787; and that the issues outstanding at the same time in the other 31 states amounted to $729,265,896. In the 17 states there are 1,354,500 miles of local roads; in the 31 there are 1,355,300 miles of corresponding class. The outstanding local bond issues in the 17 that have issued no state bonds amounted, therefore, to $485 per mile of local road; those outstanding in the other 31 states of less conservative state policy amount to $540 per mile of local road. If, therefore, it is true that the people of the 17 states do object to the issuance of state bonds, it appears that their objection does not extend to the issuance of county and local bonds. Perhaps they hope to be forgiven of their sin by the payment of the higher rate of interest.

Since there is really so much of this bonding by local units of government even in states that have refrained as states, the only way in which we shall see clearly the extent to which the practice is indulged in, is by throwing together the debt of the states and the local units in the states in which both have borrowed. Then, if we also lump together the existing mileage of improved roads built by the states and local units we shall see what the people of these two groups of states have gotten for their more or less reckless borrowing.

We find that the people of the 17 states that have issued no state bonds have 32,066 miles of roads improved with surfaces of bituminous macadam or better to show for their debt of $657,072,787. For each mile of such high type roads there is or was in 1926 an outstanding indebtedness of $20,500 per mile on every dollar of which they are paying a relatively high rate of interest.

The people of the other 31 states have a combined state and county indebtedness (ignoring the different dates of the records) of $1,621,745,468 to show for which they have 70,493 miles of roads with surfaces equal to or better than bituminous macadam. The indebtedness is at the rate of $23,000 per mile of such high-type roads; and on more than half of it the people are paying a minimum rate of interest.

If it be preferable to compare the debts of these two groups of states on the basis of their total surfaced mileage rather than simply the mileage of hightype surfaces, it is necessary to consider that the improvements in the 31 states are of distinctly higher average type than those of the 17 states. In order to arrive at an average appraisal. per mile, it is necessary to apply some uniform scale of value to the known mileages of each type of improvement in each group of states. As to this scale, ideas may differ; but for purposes of illustration we may adopt the following as representing the average capital investment in a mile of the several common types:

Applying this scale we find that the average investment in each mile of the 296,056 miles of state and local surfaced roads in the group of 17 states is $12,500 and against each mile there is an average debt of $2,220. In the group of 31 states the average investment in each mile of the 330,081 miles of state and local surfaced roads is $15,000 and against each of these miles there is a combined state and local debt of $4,915.

The difference in the indebtedness approximately equals the difference in investment.

Let us now consider the county and local income alone in these two groups of states. We find that the totals for the two groups differ by less than 20 million dollars, being $446,200,000 in the group of 31 states that have issued state bonds. The figures are for 1928. When we look to the proportion of this income that was derived from the sale of bonds we find that in the group of 17 states it was 23 per cent and in the group of 31 it was 15 per cent of the total. In other words, the people who are supposed to oppose bond issues are actually issuing high-interest local bonds in considerably greater proportion to their total local highway income than the people who presumably favor the issuances of bonds.

One more comparison and I am through with these interesting groups of states. I have referred to the transfers of income that take place annually between the states and their local units of government. In the large majority of the states it works both ways. The counties and townships give and receive. The states receive and give. But apparently the local units are generally convinced that it is more blessed to give than to receive. At any rate the fact is that 33 of the states actually do receive from their local units more than they give in return.

Of the group of 17 states all but 3 are net beneficiaries by this practice and the net gain to the states of this group is approximately $59,200,000. Of the group of 31 states 20 are similarly benefited by the interchange, although in smaller amount than their 17 sisters. In this group the net gain to the states is roundly $16,700,000. Of special interest here is the fact that the gain to the 17 states is 21 per cent of their total state income, and the profit of the 31 states is but 3 per cent of their total income.

The motor vehicle fees and gasoline taxes turned over to the counties are not considered in the foregoing analysis as transfers from the states. Though they are in fact collected by the states they are presumed to belong to the counties by law. However, when we analyze the amount of these returns in the two groups of states we find that the counties of the group of 17 states get approximately $52,000,000 of a total of $219,700,000 available for highway purposes, and those of the group of 31 states get practically the same amount(Continued on page 26)