EIGENTUM INSTITUTS WELTWiR SCHAFT K:EL BIBLIOINER M4852 THE FISCAL PROBLEM IN MISSOURI STUDIES OF TAXATION AND PUBLIC FINANCE PUBLISHED BY THE National INpusTriAL CONFERENCE Boarp, Inc. 247 Park Avenue, New York Cloth Binding The Fiscal Problem in Illinois ....... $2.50 The Fiscal Problem in New York State 3.00 State Income Taxes, Volume I......... 2.00 Volume IT........ 2.50 State and Local Taxation of Property. 2.50 Cost of Government in the United States, 1928-1929 (In Preparation) 2.50 The Fiscal Problem in Missouri...... 3.00 Complete list of publications sent on request THE [FISCAL PROBLEM IN MISSOURI INDF: &8 Te = i 0 &. | . x Le 5 RK vig irseneEt © a ht 2 NATIONAL INDUSTRIAL CONF ERENCE BOARD, Inc. NEW YORK 1930 Coryricut, 1930, BY NaTtionaL InpusTriaL CoNFERENCE Boarp, Inc, November, 1930 163 Brf Jgepii 02 4 63 PREFACE 7 NHE perpetual problem of state and local government is 1 the demand for increased revenue to meet growing expenditures. While in recent years the expenditures of the Federal Government have remained comparatively stationary, those of the state and local governments have increased rapidly. The fiscal problem that confronts these governments is twofold. First, how far is the increase of expenditures a legitimate outcome of greater governmental needs, and how far is it the result of negligence or of extravagance on the part of the guardians of the people’s money? Second, since a certain amount of increased expenditure is generally regarded as legitimate, in view of growing population” and social advance, how shall the needed revenues be obtained— by the increase of existing revenues, or the adoption of new taxes, or the resort to loans? The answer to these questions in any particular commonwealth can be determined only on the basis of a comprehensive survey of conditions in the present and in the immediate past, as respects public expenditure, public revenues, and public debt, and of a careful consideration of the needs of government. From time to time, and at the instance of groups or individuals, the National Industrial Conference Board has undertaken surveys of fiscal conditions in a number of states, namely: Wisconsin, West Virginia, Delaware, Illinois, and New York. To these studies it now adds the present volume relating to the State of Missouri, prepared at the request of the Associated Industries of Missouri. Over a long period of years, the National Industrial Conference Board has issued studies dealing with the characteristics of individual taxes, the various taxes to which particular groups of taxpayers are subject, and the taxes levied in a particular area. The last type of study is exemplified by the present volume. Through these different lines of approach the Conference Board is building up a body of tax literature vi THE FISCAL PROBLEM IN MISSOURI which should prove of great value to all who are interested in tax problems, whether as citizens, as legislators, or as administrators of tax systems. In this investigation the Conference Board has had the helpful co-operation of a number of officials and commissions of the State of Missouri. The State Tax Commission, the State Auditor, the Secretary of State, and the State Superintendent of Public Schools, in particular, gave valuable assistance, and grateful acknowledgment is made of these courtesies. In the preparation of its studies the National Industrial Conference Board avails itself of the experience and judgment of the business executives who compose its membership and of recognized authorities in special fields, in addition to the scientific knowledge and equipment of its Research Staff. The publications of the Conference Board thus finally represent the result of scientific investigation and broad business experience, and the conclusions expressed therein are those of the Conference Board as a body. The present volume has been prepared by Mr. Lewis H. Kimmel and assistants, of the Conference Board’s Research Staff, under the supervision of the Board’s Staff Economic Council. Macnus W. ALEXANDER President New York City November, 1930 TABLE OF CONTENTS INTRODUCTION . Scope of the Study Cuarrer I. Strate AnD Local ExpENDITURES State Expenditures “ . Functional Distribution of State Expenditures Distribution of Net Expenditures between Maintenance and Capital . |. | “a State Expenditures in Missouri Compared with Those in Other States . . | | : Expenditures of Missouri Local Governments Expenditures for School Purposes. Expenditures for Local Roads . Expenditures for Other Functions . Expenditures of Cities over 30,000 . Combined State and Local Expenditures Pace 1 ¢ 12 13 23 nS 9 32 33 42, 43 «4 17 II. State AnD Local INDEBTEDNESS . ; History of Missouri State Indebtedness . . Constitutional Limitations of State and Local Indebtedness ce. x « pa Amendments Authorizing Additional State Indebtedness i ox a oe, Constitutional Limitations of Local Indebtedness . Statutory Provisions Concerning State and Local Indebtedness . . . . . . . . Bonds Issued by Missouri State and Local Governments . . . . State Indebtedness . Net Bonded Debt of Missouri and Other States Floating and Current Debt of Missouri and Other States . . ‘ . . . 66 Functional Distribution of the State Debt of Missouri 68 Net Bonded Debt of Local Governments . . . 70 Combined State and Local Net Bonded Debt . Lo Cost of Money to the State of Missouri . . 71 Interest Rates on Local Bonds . . . . . 76 Interest Payments by Missouri and Other States | 73 Yvi11 viii THE FISCAL PROBLEM IN MISSOURI CHAPTER III. Tue Missour:t Tax System Constitutional Provisions . Provisions Concerning State Tax Rates Provisions Concerning Local Taxation . Taxes Comprising the Missouri Tax System General Property Tax Poll Taxes . . . Inheritance Tax . Income Tax. . . . | Special Taxes on Business Corporations Motor Vehicle Taxation . Other Licenses and Permits IV. State ann Locar Tax REVENUES Sources of State Tax Revenue Sources of Local Tax Revenue . . State Tax Receipts in Missouri and Other States Total Tax Receipts General Property Tax Inheritance Tax . Income Tax . Gasoline Tax ; ’ Motor Vehicle Licenses V. Tax ADMINISTRATION i oh wm ea Administration of the General Property Tax Administrative Agencies . . . , Valuation of Property for Purpose of Taxation Valuations for the General Property Tax The Equalization Process. . . . Criticism of Missouri’s Equalization System Property Escaping Assessment . . Pace 81 82 84 85 86 ~7 at 91 94 96 99 99 101 101 107 113 113 115 116 118 119 121 123 124 124 127 129 136 151 154 VI. Tax Apministration (Continued) . . . 164 Inequalities Resulting from Assessment Procedure ~~ 64 Assessment of Bank Stock i kw. 64 Assessment of Motor Vehicles . . . +68 Variations in Real Estate Assessments . 168 Administration of Income Tax and Other Taxes 182 Tax Collectors and Tax Delinquency . . . . 186 Possible Changes in the Administration of the General Property Tax . . . . . . 191 Possible Changes in the Administration of the Income and Other Taxes 197 TABLE OF CONTENTS <Q CrArPTER VII. Tue Farm Tax ProBrEM IN Missourt . . Taxes Paid on Missouri Farm Property . . . Net Rent Studies in Missouri and Other States . Farm Taxes in Relation to Gross Income, Cash Income, and Other Factors . . . Taxes on Owner-Operated Farms =. Nature of Missouri’s Farm Tax Problem . . Declining Income, Lack of Flexibility in Assessed Valuations, and Differences in Productiveness Variations in Assessments eB a Taxation of Farm Mortgages . . . Possible Changes in Farm Taxation ~ Pace 201 202 203 211 218 223 223 225 228 229 231 231 233 233 VIII. PusLic ScuooL Finance . . . Public School Expenditures . State Aid for Public Schools : State School Funds in Missouri . Functional Classification of State School Grants and Bases for Apportionment . . . . 234 Expenditure Analysis of State School Moneys . 240 Total State Aid Distributions for Maintenance of Public Schools See... L244 Analysis of the Present System of Distributing State Aid Moneys SE The State Survey Commission Plan of Public School Finance . . | | . 248 Analysis of the Proposed Plan. . . . . 249 An Approach to the Problem of Public School Finance 256 IX. Financing tHE Capital REQUIREMENTS oF THE State . . LL Estimated Present Needs for Capital Additions and Extraordinary Repairs . . . | | 263 Analysis of Capita] Expenditures in Recent Years . 265 Proposed Plan for Financing Capital Requirements . 267 Revenue Needed under Plan of Bond Financing 272 X. ProBLEMs oF Tax BurDEN : . . Burden on Tangible and Intangible Property Burden of the Missouri Income Tax . . Is the Missouri Income Tax an Urban Tax? . Tax Burden on Corporations . . Burden on State and National Banks . Burden of Motor Vehicle Taxation 277 277 280 281 290 295 297 THE FISCAL PROBLEM IN MISSOURI CHAPTER XI. Sources or ApprrioNaL Revesve. ©. Variable Factors in State Expenditures . . Adjustments in the Revenue System . . Sources of Additional Revenue that May Be Considered . . . Property Taxes . . Income Tax Co. Corporation Franchise Tax General Sales or Turnover Taxes Tobacco Taxes . . Motor Vehicle Taxation Pace . 300 300 303 307 308 310 116 317 318 319 XII. OreER Aspects oF THE Missouri Fiscar ProBLEm , 322 Governmental Consolidation «LL L322 Central Control of Local Expenditures . . . 324 Need for Adequate Statistics of Local Governmental Finances . . . . . 327 Municipal Accounting . 327 XIII. GENERAL SUMMARY . . 329 AppENDIX A. TABLE 89: StaTE Gasorine Tax Rates, INITIAL Rates, SuBseQueNT Rates, RATE AND Usk oF PRrocEEDS as or Jan. 1,1930 . . . 346 ArpeNDIX B. Sources axp METHODS 356 LIST OF TABLES TaBLE 1. Summary of Expenditures of the Missouri State Government, 1913, 1918, and 1923-1928 , ., . | 2. Expenditures of the Missouri State Government, 1913, 1918, and 1923-1928 . . . , 3. Net Expenditures of State Governments, Missouri and Other States, 1913, 1918, and 1923-1928 i.e. 4. Per Capita Net Expenditures of State Governments, Missouri and Other States, 1913, 1918, and 1923-1928 . 5. Percentage Distribution of Net Expenditures of State Governments Between Maintenance and Capital, Missouri and Other States, 1913, 1918, and 1923-1928 6. Functional Distribution of Net Expenditures of State Governments, Missouri and Other States, 1923-1928 . 7. Percentage Distribution of Functional Expenditures of State Governments, Missouri and Other States, 1923— 1928 . 8. Public School Expenditures in Missouri, 1915-1929 . 9. Local Highway Disbursements in Missouri, 1921-1929 . 10. Combined Expenditures of St. Louis City, Kansas City, St. Joseph, and Springfield, 1913, 1918, and 1923-1923. 11. Percentage Distribution of Combined Net and Gross Expenditures of St. Louis City, Kansas City, St. Joseph, and Springfield, 1913, 1918, and 1923-1928 . 12. Expenditures of the City of St. Louis, 1913, 1918, and 1923-1928 . . + + a» 38 13. Expenditures of Kansas City, 1913, 1918 and 1923-1928 . 39 14. Expenditures of St. Joseph, 1913, 1918, and 1923-1928 . 40 15. Expenditures of Springfield, 1913, 1918, and 1923-1928 . 41 16. Bond Issues of Public Authorities in Missouri, 1915-1929 58 17. Functional Classification of Bond Issues of Public Au. thorities in Missouri, 1915-1929 . . . . | 18. Net Bonded Debt of Missouri and Other States, 1913, 1918,and 1923-1928 . . . . . . 7 19. Ratio of State Bonded Debt to Wealth, Missouri and Other States, 1928 Pace 26 28 30 65 xii THE FISCAL PROBLEM IN MISSOURI TaBLE 20. Floating and Current Debt of Missouri and Other States, 1918 and 1923-1928 . . 67 21. Funded and Floating Debt of the State of Missouri, Classified by Purposes for which Incurred, End of Years 1918 and 1923-1928 . . . . 22. Net Bonded Debt of St. Louis City, Kansas City, St. Joseph, and Springfield, 1913, 1918, and 1923-1928 . 69 23. Missouri State and Local Net Bonded Debt, 1928 . . 71 24. State Road Bonds Issued by Missouri, September 1, 1922, to June 1, 1927 . 73 Pace 25. Comparison of Coupon and Time Rates of Interest on State Road Bonds Issued by Missouri, September 1, 1922, to June 1, 1927 . i ws 26. Bonds Issued by Missouri Local Governments, Classified According to Rate of Interest, 1926-1929 . . . 77 27. Total Interest Payments of State Governments, Missouri and Other States, 1913, 1918, and 1923-1928. . . 79 28. Property Tax Rates for State Purposes, 1910 and 1915-1930 . . . LL. 88 29. Missouri Inheritance Tax Rates . . . . . . 93 30. Annual Motor Vehicle Registration License Taxes, Missouri, 1930 . . . . . . . . . .100 31. State Receipts from Taxes in Missouri, 1923-1928 . . 103 32. Tax Receipts of Missouri Local Governments, 1922, 1926, 1927,and 1928 . . . . . . . . .108 33. Tax receipts of St. Louis City, Kansas City, St. Joseph, and Springfield, 1913, 1918, and 1923-1928 . . . 110 34. Special Assessments Collected by St. Louis City, Kansas City, St. Joseph, and Springfield, 1913, 1918, and 1923~ 1928 « ow» + ow» « x= s+ =» 1B 35. Total and Per Capita Tax Receipts of Missouri and Other States, 1923-1928 . . . . . . . 112 36. General Property Tax Receipts of Missouri and Other States, 1923-1928 «+... le 37. Inheritance Tax Receipts of Missouri and Other States, 1923-1928 . . . . . . . . . 117 38. Income Tax Receipts of Missouri, Oklahoma, Arkansas, and Wisconsin, 1923-1928 . 118 LIST OF TABLES xiit TABLE 39. Gasoline Tax Receipts of Missouri and Other States, 1925-1928 . . . . 40. Motor Vehicle License Tax Receipts of Missouri and Other States, 1923-1928 . . . . . . | 41. Assessed Valuations for the General Property Tax, 1917— 1923 .° . . 42. Assessed Valuations of Real Estate, Personal Property, and Public Utilities, by Classes of Property, 1917-1929 43. Percentage Distribution of Assessed Valuations of Real Estate and Personal Property, by Classes of Property, 1917-1929 . . 44. Summary of Changes Made During the Equalization Process in the Valuations of Real Estate and Personal Property, by Classes of Property, Taxes of 1928 . . 138 45. Changes Made During the Equalization Process in Specific Valuations for Counties, Taxes of 1928 . . 142 46. Public Utility Valuations for Taxes of 1928 as Recom.-mended by the State Tax Commission and as Fixed by the State Board of Equalization . tw 47. Number of Principal Kinds of Livestock Assessed for Taxation Compared with Number Reported in U. S. Census of Agriculture, 1925 . , = . 48. Motor Vehicle Registrations Compared with the Number Assessed for the General Property Tax, by Counties, 1927 . «3 49. Ratios of Assessed Valuation to Sales Value, Real Estate Transactions in Seven Missouri Counties, 1922 . 170 50. Distribution of Real Estate Transactions on Basis of the Ratio of Assessed Valuation to Sales Value, Seven Missouri Counties, 1922 . oo. 17 51. Ratios of Assessed Valuation to Sales Value, Real Estate Transactions, Thirty-nine Missouri Counties, 1929 . 174 52. Distribution of Real Estate Transactions on Basis of the Ratio of Assessed Valuation to Sales Value, Thirtynine Missouri Counties, 1929 . « «175 33. Ratios of Assessed Valuation to Sales Value, City Lots in Columbia, Missouri, 1910-1914 and 1923-1928 . . 176 54. Ratios of Assessed Valuation to Sales Value City Lots in Specified Divisions of Columbia, Missouri, 1923-1928 -., . . 179 xiv THE FISCAL PROBLEM IN MISSOURI TABLE Pace 55. Ratios of Assessed Valuation to Sales Value, City Lots in Columbia, Missouri, with Lots Classified According to Sales Value, 1923-1928 . . . . . . 180 56. Delinquent State Property Taxes in Selected Counties of Missouri, Taxes of 1923,1925, and 1927 . . . 188 57. Delinquent State Income Taxes in Selected Counties of Missouri, Taxes of 1923, 1925, and 1927 . . . 189 58. General Property Tax in Relation to Rent per Acre, Cash-Rented Farms in the Northwestern Counties of Missouri, 1913-1922 . . . . , . . . 204 59. General Property Tax and Net Rent per Acre on Selected Farms in Missouri, 1919-1923 . . . . . . 205 60. General Property Tax and Net Rent per Acre on Selected Farms in Iowa, 1913 and Following Years . . . 206 61. General Property Tax and Net Rent per Acre on Selected Cash-Rented Farms in Ohio, 1913-1922 . . . . 207 62. General Property Tax and Net Rent per Acre on Selected Farms in Indiana, 1919-1923 . . . . . 208 63. General Property Tax and Net Rent per Acre on Selected Farms in North Dakota, 1919-1924 . . . 209 64. General Property Tax and Net Rent per Acre on Selected Farms in South Dakota, 1919-1926 ... L210 65. General Property Tax and Net Rent per Acre on Selected Farms in Michigan, 1919-1926 -. LL. L200 66. General Property Tax and Net Rent per Acre on Selected Farms in Arkansas, 1921-1925. . . . . 67. Farm Production, Value, and Income Factors and Certain Taxes Paid by Farmers. Missouri and Other States, 1927 i . 68. Ratios of Certain Taxes Paid by Farmers to Farm Production, Value, and Income Factors, Missouri and Other States, 1927 . . 69. Average of Farm Production, Value, and Income Factors for the Years 1926, 1927, and 1928 and Certain Taxes Paid by Farmers in 1927, Missouri and Other States . 216 70. Ratios of Certain Taxes Paid by Farmers in 1927 to Average of Farm Production, Value, and Income Factors for the Years 1926, 1927, and 1928, Missouri and Other States . 217 LIST OF TABLES WV TABLE 71. Ranking of States on Basis of Ratios of General Property Taxes on All Farm Property to Gross and Cash Income from Farm Production . . . + «29 72. Taxes and Value of Owner-Operated Farms for which Taxes were Reported, by States, 1924 . . . 220 73. Ratios of Assessed Valuation to Sales Value, Farms in Boone County, Missouri, 1910-1914 and 1923-1928 . 226 74. Ratios of Assessed Valuation to Sales Value, Farms in Boone County, Missouri, Classified by Townships, 1923-1928 . . . : } 75. Ratios of Assessed Valuation to-Sales Value, Farms in Boone County, Missouri, Farms Classified According to Size, 1923-1928 . . . | 7 997 76. Functional Distribution of Public School Expenditures in Missouri, 1915-1929 . , | SLL 232 77. Expenditure Analysis of “State School Moneys,” 1925-1929 241 78. Source Analysis of Missouri State General Revenue Fund, 1925-1929. . . Lo. 243 79. State School Apportionments in Relation to Total State Expenditures for Maintenance, Missouri, 1924-1928 244 80. School Aid Moneys in Relation to Assessed Valuations, One-Teacher Districts at $900 Level . . . 251 81. Distribution of One-Teacher Districts According to the Amount of Aid Received at the $900 Level, Selected Counties in Missouri . . . ‘po. 82. Estimated Requirements for Capital Outlays and Extraordinary Repairs. 2 a . L264 83. Total and Per Capita State Expenditures for Capital Purposes, Missouri, 1913, 1918, and 1923-1928 . . . 266 84. Annual Amount of Taxes Required for Debt Service on $40 Million of Twenty-Year 4149, Serial Bonds, Issued so that the Annual Requirements for Debt Service will Remain Uniform Throughout the Period . 85. Annual Amount of Taxes Required for Debt Service on $40 Million of Forty-Year 4149, Serial Bonds, Issued so that the Annual Requirements for Debt Service will Remain Uniform Throughout the Period ~~ . . 274 86. Personal Income Taxes Levied in Missouri, 1928 . oo. 282 xvi THE FISCAL PROBLEM IN MISSOURI TaBLE Pace 87. Distribution of Income Tax Levies by Counties and Sections of the State, 1928 . . . . | . | 284 88. License Tax and Gasoline Tax per Motor Vehicle, by States, Calendar Year, 1929 . . . , . °, 298 89. State Gasoline Tax Rates: Initial Rates, Subsequent Rates, Rate and Use of Proceeds as of January 1, 1930 . 346 LIST OF CHARTS CHART Pace 1. Expenditures of the State of Missouri, 1923-1928 . . 10 2. Per Capita Net Bonded Debt of Missouri, 1913, 1918, and 1923-1928 . |. «+... 64 3. Per Capita Taxes, Missouri and Other States, 1928 . . 114 4. Total Valuations for the General Property Tax Distributed by Types of Property, 1917, 1921, 1925, and 1927 . . 131 5. Cumulative Distribution of 2,928 Items of Urban and Rural Property in 39 Missouri Counties on the Basis of the Ratio of Assessed Valuation to Sales Value, 1929 . 177 6. Cumulative Distribution of the Sales Value of 2,928 Items of Rural and Urban Property in 39 Missouri Counties on the Basis of the Ratio of Assessed Valuation to Sales Value, 1929 178 THE FISCAL PROBLEM IN MISSOURI INTRODUCTION | ’ \HERE is probably not a governmental agency in the United States that at some time or other has not had a distinct fiscal problem. In rare instances, as in the case of federal pension legislation in the latter part of the nineteenth century, fiscal policy has been determined by the existence of surplus funds at the disposal of government. Much more frequent, however, are the cases in which addi. tional income is needed in order that new functions may be undertaken or existing functions financed more adequately. Proposals for increased expenditures imply that the addi. tional funds can be raised, and, if there is an indication that the increase in tax burdens will be considerable, those who will be affected naturally tend to weigh the benefits against the cost. The fiscal problem of Missouri at the present time is one of many angles. Additional funds are needed in order to finance an accumulated deficiency in construction work for state institutions. It has been proposed to transfer a larger part of the burden of public school finance to the state government. There is admitted need of improvement in the administration of the tax laws. These are only a few of the many phases of the problem, the full extent of which cannot be outlined briefly. ScopE or THE STUDY It is not to be inferred that only phases of the problem that are definitely of current importance will be considered. The understanding of a current problem implies some knowledge of the past. It isdesirable, therefore, to analyze governmental expenditures, state and local indebtedness, and ) THE FISCAL PROBLEM IN MISSOURI sources of revenue for a period of years before considering the current aspects of state and local finance. Accordingly, three chapters are devoted to these subjects. Another chapter deals with the tax system of the state, and two chapters are given to tax administration. The first six chapters consist largely of presentation and analysis of the facts. Attention is then directed to current fiscal problems. Possible changes in tax administration are considered in Chapter VI, and in later chapters specific problems, such as farm taxation, public school finance, and financing of the capital needs of the state are analyzed. Also, tax burdens are discussed, as are possible sources of additional revenue. Finally, other aspects of the problem as a whole are treated briefly in a single chapter. CHAPTER 1 STATE AND LOCAL EXPENDITURES ’ ‘HE investigator who desires to ascertain the cost of state and local government in any state is in most cases confronted with the fact that complete statistical information is not available. Ample data on the expenditures of the state governments are readily obtainable, but in the case of the minor jurisdictions it is frequently found that the necessary data concerning the amounts expended for certain governmental functions have not been compiled, and that the records of many governmental units are not kept in such a manner that they can be used for purpose of statistical analysis. In the majority of states no state agency is specifically charged with the task of compiling data for the expenditures of the local governments. There appears to be an insufficient appreciation of the significance of such data on the part of legislative bodies. State officials in many instances have requested appropriations for the purpose of compiling complete local data, only to have their requests refused. Comparatively few states are in a position to furnish complete statistics concerning the cost of local government, and unfortunately Missouri is not one of them. Several federal agencies, however, have been active in overcoming the dearth in local governmental statistics. As a result of their work information is available concerning the expenditures of all cities having a population of more than 30,000 and the expenditures of all minor divisions for road and school purposes, which are the two most important functions of local government, judged from the standpoint of amounts expended. In the case of Missouri the principal difficulty is in ascertaining the amounts expended for functions other than roads and schools. It is true that the expenditures for the latter functions comprise a large part of the total, but the absence of definite information for certain other functions precludes the possibility of complete analysis. 1 THE FISCAL PROBLEM IN MISSOURI StaTE EXPENDITURES It is common knowledge that the annual expenditures of the state governments have been increasing rapidly. Each year the combined data for the forty-eight states indicate a total appreciably larger than that for the previous year. Numerous reasons might be presented for the increasing volume of state expenditures. The most important are perhaps the extension of state activities into fields previously left entirely or largely to the local governments and the assumption by the state of certain functions that formerly were not regarded as within the proper sphere of government. Then, too, the public has become accustomed to a higher standard of living and consequently demands governmental services that are more extensive in scope and of a higher quality than was once deemed satisfactory. Governmental expenditures have naturally increased with the growth of private expenditures. Our economic and social order is in a state of change, and it follows that the province of government and the distribution of governmental functions must andergo continuous alterations, if government is to keep pace with economic and social changes. It is probable that the increase in the expenditures of the states as well as of other governmental units can be explained largely on the basis of this concept of change. While state expenditures have been increasing rapidly, it does not follow that the trend for any particular state has been continuously upward. Capital expenditures are frequently very irregular, and as a result the total expenditures of a number of states may actually show a decline over a period of several years, although there is a gradual or very striking increase in the combined expenditures of all state governments. Occasionally, administrative consolidations and reforms, effective over a period of several years, will contribute toward a decline in a particular state in the face of the general upward trend. However, where a rapid decline or an unusual variation in the total expenditures of a particular state is noted, the most important factor contributing to the result is usually found to be the fluctuation of expenditures for capital purposes. As will be seen later. STATE AND LOCAL EXPENDITURES 3 this explanation is particularly applicable to the State of Missouri. Probably the most striking conclusion to be drawn from the data presented in Table 1 is that the expenditures of the state government in Missouri have in recent years' been on a level that is not at all comparable with the volume of expenditures in 1913 and 1918, the earlier years for which figures are presented. Changes in the purchasing power of the dollar account in part for the relatively large expenditures in the recent years when compared with 1913, but they do not account for the large differences between 1918 and the later years for which data are given. The gross total of expenditures amounted to $44.5 million in 1928, as compared with $7.6 million in 1913 and $13.0 million in 1918. In other words, gross expenditures in 1928 were almost six times as large as in 1913 and more than three times as large as in 1918. Gross expenditures in the peak year of 1925 amounted to $54.3 million, an amount more than seven times as large as the gross total for 1913. Similar comparisons may be made of net expenditures? using the data presented in Table 1. TasLe 1: Summary oF EXPENDITURES OF THE MISSOURI State GovErRNMENT, 1913, 1918, anp 1923-1928 Computed by National Industrial Conference Board Index Numbers| Base: 1913 = 100 Whole-' sale Prices ndex Numbers dase: 913 = 100 Index Numbers 1913 = 100 Current | Dollars 1913 Dollars Current Dollars 1913 Dolare Current Dollars 1913 Dollars Current Dol Tare 1913 Dollars 100.0 91.1 402.1 449.2 482.3 496.4 100.6 140.0 158.567. 525]27.545.44¢ os I Converted to the 1913 base from the revised series of the U. S. Bureau of Labor Statistics, currently computed relative to the base 1926=100, ® Totals in current dollars from Table 2. 1The fiscal year of the Missouri state government ends December 31; hence where state finances are concerned “year” is used instead of “fiscal year. 2 Net expenditures differ from gross expenditures in that payments for interest and debt redemption are included in the latter but not in the former. oa THE FISCAL PROBLEM IN MISSOURI In Table 1 the net and gross expenditures of the Missouri state government are shown also in 1913 dollars, or dollars having a uniform purchasing power. Since the price level in 1913 was lower than in any later year, it follows that the net and gross totals for all years later than 1913 are smaller when shown in 1913 dollars than when dollars of current purchasing power are used. Thus, both net and gross expenditures for 1918 expressed in 1913 dollars were smaller than the corresponding totals for 1913, while in actual dollars the opposite is true. Gross expenditures in terms of 1913 dollars were almost five times as large in 1925 as in 1913, while in 1928 they were more than four times as large. The reasons for the enlarged volume of expenditures in 1923 and later years will be considered in detail in the section on functional distribution. The relatively low volume of expenditures in 1918 is explained largely by two factors not immediately apparent from the tabular presentation. In 1918 production for war purposes was at its peak, and ‘the financial resources and manpower of the nation were being used unsparingly to accomplish a single end as quickly as possible. Consequently, governmental expenditures, particularly for capital additions and replacements, were kept at an absolute minimum. Another factor that in part accounted for the relatively small amount of state expenditures in that year was the salary scale in the government service. Salaried employees are usually the last to receive the benefit of pay increases when the trend of the price level is definitely apward. The large majority of state employees are on a salary basis, and it seems likely that in 1918 the total of salaries paid by the state had not increased in proportion to the decline in the purchasing power of money. While this second factor is perhaps not so important as the first, it is of sufficient importance to deserve mention. Functional Distribution of State Expenditures The data presented in Table 2 show why state expenditures in recent years have been on a comparatively high level. The reasons for the variations in total expenditures will become readily apparent from analysis of these data. Since highway construction and maintenance absorbed a STATE AND LOCAL EXPENDITURES 7 larger proportion of state funds than any other function in 1923 and later years, the expenditures for this purpose will be considered first. The state highway construction program did not get under way until late in 1922; capital expenditures for highway purposes in that year amounted to only $3,038.1 Although the $60 million bond issue for highway construction was approved by the voters Nov. 2, 1920, the first bonds issued under the constitutional amendment bore the date Sept. 1, 1922, and very little new construction work was completed in that year. In the year 1923 capital expendi tures for highways amounted to $12.7 million, and expenditures for maintenance were $1.6 million. For the period 1923 to 1928.2 inclusive, capital expenditures for highways amounted to $113.3 million, and maintenance expenditures, to $12.1 million. The combined expenditures for highway construction and maintenance in the six-year period amounted to $125.4 million, or 47.3%, of the net expenditures and 42.5%, of the gross expenditures. State highway expenditures were larger in 1925 than in any year, the total for that year being $28.9 million, or 56.9%, of the net expenditures. Of the total, $26.2 million were classified as for capital purposes. After 1925 the amount expended for highways showed a decline, and in 1928 the total was only $15.1 million. As $75 million of additional state highway bonds were approved in 1928, it is probable that an upward trend in highway expenditures will be evident beginning with the year 1929. Examination of the highway data in Table 2 in relation to the net and gross totals leads to the conclusion that the variation in highway expenditures was the principal cause of the rather unusual differences in the annual net and gross totals. If the amounts shown under highways for the years 1923 to 1928 are deducted, it is found that the expenditures for all other purposes varied within narrow limits, and, since the expenditures for highway maintenance were relatively small. it is evident that the variations in state expenditures 1 United States Bureau of the Census, Financial Statistics of States, 1922. } ? According to the United States Bureau of Public Roads tabulations, capital expenditures in 1929 amounted to $20.5 million, and those for maintenance, to $4.7 million. TaBLe 2: EXPENDITURES OF THE Missourt STATE GoveRNMENT, 1913, 1918, anp 1923-1928 Source: United States Bureau of the Census, Wealth, Debt and Taxation, 1913; Financial Statistics of States, 1918 and later years Computed by National Industrial Conference Board 1913 1918 1923 1924 1925 1926 1927 1928 | 1923-1928 maintenance... .. $1,079,309$1,424,119(83,274,817|$1,979,828($3,003,881/$2, 151,869(83,301, 124(82,376,435|$16,087,954 capital ........ 242,949] 773,945] 193475 145214) 117,460 158,329 147,516 32,935 794,929 total. ....... + 1,322,258] 2,198,064 3,468,292 2,125,042} 3,121,341( 2,310,198] 3,448,640] 2,409,370] 16,882,883 maintenance... 382,874] 3,152,442] 6,826,527| 5,910,800| 3,833,339] 3,066,580| 4,041,181| 4,428,307 29,006,824 capital. ....... .. 399,076 129,855 15,877 49,900 21,366] 169,292 135,206 521,496 total. ,...... 382,874| 3,551,518] 6,956,382{ 5,926,767] 3,883,239] 3,987,946 4,210,473 4,563 513| 29,528,320 Education: maintenance... 3,651,077| 4,145,010| 7,937,058 9,415,316| 9,101,524|10,082,061| 9,482,090|10,564,329| 56,584,178 “capital. ...... 120,447 35,471) 1,290,840 510,412] 488,155] 604,363 283,187 49,153] 3,226,110 total. ....... 3,771,524] 4,181,381] 9,227,898 9,925,728 9,589,679(10,687,324] 9,766,177|10,613,482| 59,810,288 Highways: maintenance. , . 26,098 481,579] 1,559,593] 2,805,480] 2,654,801| 2,657,980] 1,411,950 1,006,148| 12,095,952 capital. ...... . ..112,730,139|17,929,144|26,198,275|23.751,605|18,582.958|14,069.613{113.261.734 total. ....... 26,098] 481,579114,289,732(20,734,624|28,853,076(26,409,585|19,994,908(15,075,761 125,357,686 Economic development: maintenance. . =. 564,340| 1,182,865| 1,341,023| 1,183,754] 1,145,603] 1,236,306] 1,203,512| 7,302,151 capital. ....... I» 300] 84,795] 26,518] 11.560 23.147 40.435] ©. 186,435 total. ....... .. 564,640) 1,267,660) 1,367,541| 1,195,314] 1,168,750( 1,296,831 1,292,512 7,588,608 maintenance... 1,843,024| 1,585,835| 3,037,720| 3,618,650| 3,797,327| 4,133,010| 4,392,070] 4,540,028] 24,430,607 capital. ....... 110,369 7,397) 436,857 117,586] 256,663] 141,892 378,140 33,414} 1,364,552 total. ....... 1,954,293( 1,593,232| 4,374,577| 3,736,238 4,052,990! 4,275,802] 4,770,210] 4,574,342] 25,785,159 maintenance. .. 67,037 5,682 18,767 6,543) 88¢ 2,780 G,A14| 38,845 76,235 capital. ....... .. .. ot ‘5 a .. .. .. total........ 67,037 5,642 18,767 6,543 26 7750! 6,414 38,845 76,235 maintenance. . | 7,050,319|11,359,867|24,737,347125,077,732|23,577,51224,141,683|23,892,125(24,247, 504 145,673,903 capital. ....... | 473,765 1,216,189/14,865,961|18.744,751(27,122,013|24,700,702{19.601.528|14,320,321|119.355.276 total. ........ |_7,524,084 12,576,056139,603,308|43,822,483150,699,525(48,842,385|43,493,653|38,567,825(265,029,179 General government: Social welfare: Miscellaneous: Debt redemption®. . . ...ovvuueeennennef | 2,569,000] 2,444,500] 1,695,000] 2,190,400] 3,125,000( 2,707,500] 14,731,400 TNEIESE. «ve vemeneninons oso | 73,169] 436,088] 1.852.542] 1,676,433] 1,945.690| 3,006.328| 3.297.765| 3,218,105| 14,996,863 Gross total......... .... ceed 7,597,253113,012,144(44,024,850|47.943,416154.340,215 54,039,113]49,916,418(44,493,430{294,757,442 Percentage Distribution of Net Expenditures for Capital and Maintenance Maintenance. . ....vover es enencerannnn 93.7 90.3 62.5 2 465 49.4 54.9 62.9 55.0 Capital... ....oi viii iia 6.3 4.7 3:43 42.8 53.5 50.6 45.1 37.1 45.0 Combined total. ...................., 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Percertace Distribntinn of Combined Net Expenditures 1745 | . : . to 11.2 Loa 50.1 109 21.9 22.4 275 22.6 0.3 56.9 54.1 46.0 3° - 47.3 .. 2.4 24 3.0 Cot 2.9 26.0 | 1 °.0 8.7 11.0 1 9.7 0.9 oe YE . . Cd a 00.0 | 1000 1000, 1000 | 1000 | 1000 | 1000 | 100.0 | 1000 _ General government. ................. PIOtaotION., , o 1 5 yon 5 spwry » wo g «ois 5 + 5 Education ..ooiviossnmnvsnnasmmanesss Highways, sc.oissnmmvnins ssavmnnesis Economic development. .............. Social welfare. ....ovvviienniennnenen. Miscellaneous. . ...oveiiii iii Combined total. . ... ee Percentage Distribution of Combined Gross Exvendituree { General government . “3 Lo % Protection. ........ Np, ‘4 10.3 10.0 Education. ..........- wisii waa I. 1.6 23.8 20.3 Highways. ...........c.0. .. 489 40.1 33.9 42.5 Economic development. .............. 7.1 2.6 2.9 2.6 Social welfare... ov cnunvi nr ~srvsaen 79 9.5 10.3 8.8 Miscellaneous. . .....cvvvineiis oe. .. 0.1 hy Debt redemption. .....covvenvevannnnnn J 6.3 6.1 5.0 Interest............ Cee an om ld 5.6 6.6 7.2 5.1 Combined total. ........... 100.0 | 100.0 , 100w , 100.0 , 100.0 : 100.0 | 100.0 nnn 100.0 1 Expenditures for these functions in 1912 zre not comparable to those for later years, see Appendix B, p. 356. * Debt redemption ficures from Commercial 21d Financial Chronicle, State and Municipal Compendium series. 10 THE FISCAL PROBLEM IN MISSOURI are attributable primarily to varying capital expenditures for highway construction. The importance of highway expenditures in the fiscal program of the state is shown in Chart 1. Cuart 1: EXPENDITURES OF THE STATE OF MISSOURI, 1923-1928 MILLIONS OF DOLLARS 5 7 | Smal a A . 3 ee Par 3 54 DEBT —REDEMPTION— a Ti I INTEREST —— = . TEE 27 mE 1€z4 1223 19<0o 1927 1928 Education ranks second on the basis of percentage of total state expenditures. During the period 1923 through 1928 state expenditures for education amounted to $59.8 million, or 22.6%, of net state expenditures and more than 20%, of the gross total. Of the years for which data are presented in Table 2, educational expenditures were the largest in 1926, amounting to $10.7 million. The variation in the amounts annually expended for education from 1923 through 1928 was relatively small, and such expenditures were on a much lower level in 1913 and 1918. Unlike highway expenditures, disbursements for educational purposes were predominantly for maintenance. In only one year, 1923, did capital outlay for this purpose exceed $1 million. Educa- STATE AND LOCAL EXPENDITURES 11 tional expenditures are almost exclusively for two objects, the operation and maintenance of institutions of higher education and the provision of state aid to the public school system.! The two governmental functions that have been considered, construction and maintenance of highways and provision for education, accounted for almost 709, of the net expenditures of the state government during the period 1923 through 1928. In no single year of the period did they account for less than 599 of the net total. On the basis of funds expended the remaining five functions may be regarded as of minor importance. Only one of these, protection, accounted for more than 109, of the net total for the period. The other functions ranked according to amount of expenditures as follows; social welfare, general government, economic development, and miscellaneous. While there are variations in the annual expenditures for these purposes, the variations tend to offset one another, with the result that no marked trend is discernible. Expenditures for general government show a considerable percentage change from year to year, primarily for the reason that the legislature meets in alternate years, and in the years in which it is in session expenditures for general government are naturally augmented. Interest payments amounted to $3.3 million in 1927 and were almost as large in 1928. The changes in the volume of interest payments during the period 1923 through 1928 are explained by provisions for the issue of state highway bonds. The $60 million issue previously mentioned was placed on the market in ten series over a period of almost five years. The intervals between the several dates of issue were irregular, and uniform amounts were not marketed on each date of issue. In addition, certain of the earlier issues bore comparatively short maturity dates. As a result, interest payments on the highway indebtedness were irregular in amount. Variations in the volume of indebtedness incurred for other purposes and changes in the rates on short-term obligations contributed to the fluctuations in total interest payments, but the irregularity in interest payments on highway bonds was the principal factor. 1 State aid for public schools will be considered in Chapter VIII. 12 THE FISCAL PROBLEM IN MISSOURI Before considering expenditures for debt redemption it should be pointed out that the amounts so expended may result in double counting when a period of years is considered. If funds received from the sale of bonds bearing a maturity date of 1928 were used in 1923, for example, and if the expenditure was shown under the proper classification, then the inclusion of the redemption payments in the later year results in a duplication of the amount originally expended. This is a form of duplication that is difficult to avoid, and it seems preferable to include payments for debt redemption in order that as complete a picture as possible may be obtained of the aggregate fiscal transactions. It should be remembered, however, that when bond proceeds are used during the same period in which the bonds are retired, double counting results if debt redemption also is included as an expenditure. Since borrowed funds are in many instances commingled with funds from other sources, it would be practically impossible to make allowance for this form of duplication in computing the gross total of expenditures over a period of years. The figures for debt redemption in Table 2 represent the retirement of outstanding bond obligations. The repayment of current debt items is not construed as debt redemption. Reference to the table indicates that the state expended $14.7 million for debt redemption during the period 1923 through 1928. This amount is equivalent to a considerable proportion of the bond issues of the state during the period. The combined expenditures for debt service were appreciably larger in 1926, 1927, and 1928 than in the three years preceding. For the six-year period interest and debt redemption accounted for slightly more than 10% of the gross total state expenditures. Distribution of Net Expenditures between Maintenance and Capital In the years 1913 and 1918 the net expenditures of the Missouri state government were predominantly for maintenance. Capital outlays in both years amounted to less than 109% of net expenditures. During the period 1923 through 1928, however, capital outlays were relatively of STATE AND LOCAL EXPENDITURES 13 much greater importance. In two years, 1925 and 1926, capital expenditures exceeded 509, of the net total for all purposes. In the former year capital expenditures for highways alone amounted to more than 509%, of the net total for both capital and maintenance. Comparisons between capital expenditures for highways and total capital outlays and between net total expenditures for maintenance and for capital indicate the overwhelming importance of the highway construction program in the finances of the state, beginning with the year 1923. Consideration of the relatively small amounts of capital outlays for other purposes suggests the inference that the state may have neglected to develop the plants needed in its social welfare and educational activities. That such may be the case is evident from the reports of the State Survey Commission.! StaTE ExPENDITURES IN Missourl CoMPARED WITH THOSE IN OTHER STATES? The expenditures of any state government take on added significance when compared with those of other states. It is only when compared with data for other states in the same region that the fiscal statistics of Missouri attain their full meaning. Accordingly, summary data for the expenditures of eleven states with comparable data for Missouri are presented in Tables 3, 4, 5, 6, and 7. Table 3 shows that in 1913 the net expenditures of Missouri were exceeded by 6° of the 11 states and in 1918, by 5* states. As has been seen, in 1923 and later years the expenditures of Missouri were relatively much larger than in 1913 and 1918. [t is not surprising, then, to find that when the data are combined for the years 1923 through 1928 the expenditures of Missouri were exceeded by only 3 states in the group, t See particularly the pamphlet entitled “Penal and Eleemosynary Supporting Data to the Report of the State Survey Commission. For further discussion of this subject see Chapter IX. * The expenditures considered in this section do not include payments for interest and debt redemption. Interest payments are discussed in Chapter II. Data in this section are on a fiscal year basis. % Minnesota, Illinois, Indiana, Ohio, Wisconsin, and Kentucky. $Same as footnote 8, except Kentucky. TaBLE 3: Ner ExPEnDITURES oF StaTE GovERNMENTS, Missourr anp OrtHER STATES, 1913, 1918, AND 1923-1928 Source: United States Bureau of the Census, Wealth, Debt and Taxation, 1913; Financial Statistics of States, 1918 and later years Computed by National Industrial Conference Board _ Jiang Ratios of Various States ‘0 Missouri Per Cent Missouri: maintenance 57,050,319(811,359,8 24,737,347 325,077,732|823,577,512'324,141,683(823,892,125 324,247,504|$145,673,903| 100.0 capital. .... 473.765 1.216,189| 14.865.961| 18,744,751 SR 24,700,702] 19,601,528] 14,320,321| 119,355,276] 100.0 total..... 7,524,084] 12,576,056 39,603,308] 43,822,483 50,699,525! 48,842,385 43,493,653| 38,567,825| 265,029,179] 100.0 Minnesota: maintenance 2,017,436] 18,728,544] 33,358 846| 31,030,056 31,500.35 2.46421) 36,700,222] 34,964,115 200,017,994] 137.3 capital..... 2.456,590| 1004490] 8.791.275 12,327,535] 13,842,147! 13,064,858 12,575,914] 12,914,533| 73,516.262| 61.6 total... '4,474,026| 19,733,034] 42,150,121] 43,357,591] 45,342,481" 45,529,279 49,276,136| 47,878,647! 273,534,256) 103.2 maintenance 5,682,397; 10,072,949 28,320,606) 24,144,564 18,349,120' 21,859,326) 23,033,531 22,504,088] 138,211,235( 94.9 capital. .... 295.370] 1402954 14,410,285 15.793.440! 14,241,637 11,134,842! 13,053,164! 17255,709' 15.889.167| 72.0 total..... 5,977,767 11,475,903 42,730,891 20 938,004 32,590,757 32.994,169 36,086,695 30 70 °° 794100402] 84.6 Nebraska: maintenance 13,200,595] 4,955,360) 8,163,697) 140,123) 8,423,505 9,695,366 10,974,948 “2,264,152 57,661,791] 39.6 capital. .... 371,7021 1,101,147¢ 3,607,7200 3,524,479! 5,055,035 6,745,55¢ 9,208,833" 8,573 976 36,715,601 30.8 total...... 3.572.097) 6.056.507 11771417 11,664,602 13478,54C 16,440,924 20,183,781" 20,838,128| 94,377,392] 35.6 maintenance 4,725,542] 7,127,397! 11,401,000 40,144,317] 12,814,534] 12,878,496] 14,695,535] 15,468,588 107,402,470) 73.7 capital. .....| 470,680] 634990 1,861,206] 1263817] 791,140 3,790,113] 9,105,088] 12,065,867 28,877,231] 24.2 total..... | 5.196.222] 7.762,387 13.262,206 41,408,134 13.605.674! 16,668,609" 23,800,623 27,534,455 136,279,701] 51.4 fe iL i bo Oklahoma: maintenance.! 2,905,606] 7,473,226] 11,937,762] 12,609,626 16,278,863) 15,598,617) 17,250,096/ 18,856,605] 92,531,569] 63.5 capital..... 563,835 1238218 6,772,347| 7,817,548] 10,809,304! 14,162,695 10,763,728| 15,555,094 65.880.716| 55.2 total... 3,469,441) 8,711,444 18,710,109| 20,427,174| 27,088,167! 29,761,312" 28,013,824] 34,411,699! 158,412,285 59.8 Arkansas: maintenance 2,946,464 4,354,597 7,078,144 8,539,353 11238,257 11,959,106 13,192,622] 15,266,315| 67,273,797] 46.2 capital..... 122,800] ~~ 38,080] 541,721} 2,125,844| 8,417,793 7,243.363| 7,343,863] 10,887,747] 36.560.331] 30.6 total... 3,069,264 4,392,677 7,619,865 10,665,197] 19,656,050 19,202,460 20,536,485] 26,154,062] 103 224,128] 39.2 maintenance 12,413,652] 22,553,998| 36,368,621| 80,940,320 48,091,603| 43,199,477 44,076,324] 46,523,364 299,199,709] 205.4 capital..... 527,567 2,811,308| 29,996,407| 39,279,504| 42,045,190| 27,357,097 20,768.850 36,108,042] 195,555,086| 163.8 total... 12,941,219] 25,365,396] 66,365,028 120,219,824 90,136,793! 70,556,570" 64,845,174] 82,631.40" 494754,795 186.7 maintenance 7,845,8001 12,123,509| 21,107,900] 22,928,956 22,260,591| 24,747,324 6,194,760 27,772,816] 145,012,347] 99.5 capital..... 170,230] 548,845 8,424,247] 13,732,374| 13,398,685] 11,188,908" 13,846,016 16,422,683 77,012,913 64.5 total..... 8,016,030| 12,672,444] 29,532,147' 36,661,330 35,659,276! 35,936,237 40,040,776! 44,195 49¢ 222,025,260] 83.8 maintenance 11,525,778 18,425,087) 34,068,326] 30,002,501 32,484,164| 38,553,557] 41,953,208 4,154,303 221,476,110] 152.0 capital .... 1,234,330 3,398,643 12,251,197 12,810,249] 13,689,674 12,193,854 10,912,780| 11,260,033 73.117.782| 61.3 total... 12,760,108] 21,823,730| 46,519 518! 42,832,799! 46,173,838! 50,747,411 52,865,988| 55454 72° 294,593,892] 111.2 Wisconsin: maintenance 1,725,421 15,346,966 26,373,664 25,348,960] 26,381,205! 28,254,072] 31,069,774 30,274,681) 167,702,356| 115.1 capital..... 858,834] 1156917 1,213,328 7,199,264] 5480,06°' 9,173,072] 13,656,704] 15,681,146 56,532,582] 47.4 total..... 12,584,076] 16,503,883" 31,721,992] 32,548,224| 31,861,273! 37,427,144] 44,726 478 45,955,877 224,240,938] 84.6 Kentucky: maintenance 7,525,741 10,418,628! 13,486,267] 15,960,142] 16,288,473] 16,886,279] 17,971,201] 18,834,199] 99,426,561] 68.3 capital. ..... 36,104] 89,725 5,445,076 8,145,984] 10,518,011| 10,004,319] 11,143,001| 16,176,079 61,432.470 51.5 Widener 7,561,845] 10.508.352 12 031,343 24,106,12¢! 74 204 424! 94,890,598 29,114,202] 35.010.278] 160.859,031 60.7 > Ohio: 16 THE FISCAL PROBLEM IN MISSOURI Minnesota, Illinois, and Ohio. The net expenditures of Minnesota were 3.29, larger than those of Missouri; of Illinois, 86.7% larger; and of Ohio, 11.2%, larger. The ratios of the expenditures of the eight other states to those of Missouri are presented in the last column of Table 3. These ratios show that the net expenditures of Missouri for the six-year period were considerably more than the combined net expenditures of Kansas and Nebraska. The same is true of the combined expenditutes of Oklahoma and Arkansas and of other combinations of two states. Probably the most significant comparison on the basis of the data in Table 3 is between the capital expenditures of the several states and those of Missouri for the six-year period. Only one state, Illinois, had larger capital expenditures than Missouri, and none of the other states expended 75% as much for capital purposes. The capital expenditures of Ohio, a state having a much larger population and greater wealth, were only a little more than three fifths as large as those of Missouri. The capital ratios in Table 3 are highly instructive and show conclusively that the capital expenditures of Missouri during the period were much larger than those of other states of comparable population and wealth. In Table 4 the maintenance, capital, and net total expenditures of the several states are presented on a per capita basis. In 1928 the net expenditures of Missouri amounted to $10.76 per capita, a smaller amount than for any other state in the group except Ohio. Minnesota showed the highest per capita net expenditures, $18.95. In 1927 the per capita net expenditures of Missouri were $12.21, while in 1925 and 1926 they were $14.40 and $13.79, respectively, and in those years the net expenditures of the state on a per capita basis were exceeded only by Minnesota. The decline in the figures for Missouri after 1925 is largely attribatable to the decrease in highway expenditures. Per capita expenditures in Missouri for maintenance in 1928 amounted to $6.77, a smaller amount than in any state except Illinois. Although Missouri’s per capita expenditures for maintenance were higher in both 1923 and 1924 than in the later years, the difference was not great. The variations from year to year in Missouri have been much less than for STATE AND LOCAL EXPENDITURES 17 a number of other states. On the other hand, the expenditures of Missouri for capital purposes on a per capita basis increased during the period 1923 through 1925, but decreased in the later years, when highway expenditures showed a considerable decline. In 1925 and 1926 the per capita expenditures of Missouri for capital purposes were larger than those of any other state for which data are included in Table 4. On the same basis, Missouri ranked second in 1927 and eleventh in 1928. The change in the ranking for Missouri is attributable almost entirely to the decline in highway expenditures during a period in which the total capital expenditures in many of the states showed a marked tendency to increase. Table 5 shows the percentage distribution of the expenditures data given in Table 3 between maintenance and capital. Examination of this table indicates that there was nothing unusual in the Missouri distributions for 1913 and 1918. In both years some states had a larger proportion of maintenance expenditures to total expenditures than Missouri, while others had a smaller proportion. In 1923 only one state, Illinois, had a smaller proportion than Missouri. From 1924 through 1927 Missouri in each year had a smaller proportion of maintenance expenditures than any other state in the group. In 1928 Missouri’s expenditures for maintenance were relatively much larger than in the preceding years. In four of the six years, 1923 to 1928, the maintenance expenditures of Missouri comprised a smaller percentage of total expenditures than was the case for any other state in the group, and for the entire period the proportion for Missouri was lower than for any other state. For the period, Missouri’s expenditures for maintenance amounted to 559 of the net total expenditures of the state. The maintenance expenditures of only one other state in the group, Oklahoma, amounted to less than 609, of net total expenditures for the period. The statistical material presented in this section would not be complete without considering the functional distribution of the expenditures of the several states. In Table 6 the data for the several functions for the six-year period, 1923 through 1928, have been combined. The combined data for a TaBLe 4: Per Carita NET EXPENDITURES OF STATE GOVERNMENTS, MissoUuRl AND OTHER STATES, 1913, 1918, 1923-1928 Computed by National Industrial Conference Board State Missouri: maintenance. .. .. capital... oo iin. total. ous pum vireo mun Minnesota: maintenance. ............ capital. .... ee total. ................. maintenance. ............ ;apital. oo... total. .....ooiiuiiiinnn, Nebraska: maintenance..... ...... capital. ..... vali total. .........iialol. Kansas: maintenance. ............ Capital. os ins sss mmm total. ...... ce Oklahoma: maintenance. .............]| oooita). sear ume ss ammmmsas otal... a Ve) Iowa: maintenance. . . . . cee. apital.....oo00 LiL total. ........oiiln maintenance. ............ apital....... Cee total .............o..L maintenance... .......... capital. ...... . total. .... oii... maintenance. ............. capital. ..... IEE 17 total. ..... ‘a © Wisconsin: maintenance. ............ capital. .... RE total. ene isrsrmnnmaris Kentucky: maintenance.............. capital. ............o.ln total Arkansas: v3 18 1923 1924 | 1928 1926 07 | 1928 $2.12 $3.35 $7.11 $7.17 $6.70 I $6.82 $6.71 $6.77 0.14 0.36 4.28 5.35 7.70 6.97 5.50 |! 3.99 2.26 3.71 11.39 12.52 : 14.40 13.79 12.21 10.76 5.55 8.06 13.68 12.63 12.73 13.03 | 14.63 13.84 1.14 0.43 3.60 5.02 5.59 5.24 5.01 5.11 6.69 8.49 17.28 17.65 18.32 18.27 19.64 18.95 2.50 4.26 | 11.69 9.94 7.53 8.95 9.41 | 9.17 . 0.13 0.59 5.95 650 | 53 456 | 533 7.03 2.63 4.85 17.64 16.44 13.38 13.51 14,74 16.20 2.62 3.89 6.18 6.13 6.30 | 7.21 i 8.11 9.01 0.30 0.86 2.73 2.65 3.78 5.02 6.81 6.30 292 | 4,75 8.91 8.78 10.08 12.23 14.92 15.31 2.76 | 4.07 l 6.33 22.15 7.03 7.02 I 7.97 8.34 0.27 | 0.36 1.03 0.70 0.43 2.07 4.93 6.50 3.03 4.43 7.36 22.85 7.46 9.09 1290 ' 14.84 1.65 3.83 5.59 5.81 7.38 6.96 I 7.58 8.15 0.32 0.63 3.17 | 3.60 4.90 6.32 473 6.73 1.97 4.46 8.76 041 12.28 13.28 12.31 : 14.88 8.34 ios | So 6.60 | 724 i = 14.28 i = 11.27 CH or 10.60 2 0 a 10.91 Lo > o EE TET EE i 36 4.28 55% i = 3 3 1 5.9 2 189 Hi v = : be = 12.82 [ 224 = 2.11 | 0.45 > - o : 0.09 — 02 9.74 = 2 | = ; 4. 9.74 2.20 fr ia 6.98 = | = : : 6.19 | 279 | i : : 2.83 0.19 rt Ea - 0.06 er 39 9.77 ” z | = 1 : F z 2.2 2 Sig - = i 10.57 3.32 on : : - or); = 10.07 056 i 393 | 7.73 = = 0 a J 5 1. : 5 io | or 13.34 1 = = 7 11.47 2 2 2 wa 11.84 = 2 : 3 i = 13.58 | E Se "113s | 7 : rn 10.60 | bo = 10.65 3.23 4:36 2 | = 7.64 4.40 29g TaBLE 5: PERCENTAGE DisTRIBUTION OF NET EXPENDITURES OF StaTE GOVERNMENTS BETWEEN MAINTENANCE AND Capital, Missouri AND OTHER STATES, 1913, 1918, anp 1923-1928 Computed by National Industrial Conference Board State Missouri: maintenance........ capital............ folal. . sono 2 gre Minnesota: maintenance. ....... capital. ...... oot total. ......onnnn 2 . => Iowa: maintenance... .... capital. ..... oooh total. ....oveenns Nebraska: maintenance. ....... capital... lee total. ......unnn Kansas: maintenance. .......| capital. ......venne total. cou emiaees Oklahoma: maintenance. .......! capital, ...... cont. 10tals soso wmmran Arkansas: maintenance. ...... capital, ou one ey nnn total. ion is venue maintenance. ....... capital... uaeees 100A. aii v sa mens maintenance. ...... capital. .......... total, ; so « onmmae maintenance. ...... capital. ....... total. ........... 2 . - . — Wisconsin: maintenance. ...... capital. ......o.nn total. ......o0nn Kentucky: maintenance....... capital... .....ntns total. ........... te— ftiitite — rm —— etter es 1913 1918 ’ 1053 1924 ’ 1925 1926 ' 1927 ! 1928 1923-1928 93.7 | 90.3 62.5 , 572 } 465 | 49.4 54.9 62.9 55.0 6.3 9.7 37.5 42.8 53.5 50.6 45.1 | 37.1 45.0 100.0 100.0 1000 100.0 | 100.0 } 100.0 100.0 100.0 100.0 83.0 949 , 79.1 71.6 | 69.5 | 71.3 74.5 73.0 73.1 17.0 51 20.9 28.4 30.5 28.7 | 25.5 | 27.0 | 26.9 100.0 100.0 100.0 100.0 100.0 ° 100.0 100.0 100.0 100.0 95.1 87.8 66.3 | 60.5 | 56.3 66.3 63.8 56.6 | 61.7 4.9 12.2 33.7 39.5 43.7 33.7 36.2 43.4 38.3 100.0 100.0 1000 ~~ 100.0 100.0 100.0 100.0 100.0 100.0 89.6 81.8 69.4 69.8 62.5 59.0 54.4 58.9 | 61.1 10.4 18.2 30.6 | 30.2 37.5 41.0 45.6 41.1 38.9 ry e— | A—————— rit rretn | —————— ————— bt —— ————— ——————— 100.0 100.0 100.0 100.0 100.0 1000 100.0 100.0 100.0 90.9 91.8 86.0 96.9 94.2 71.3 61.7 56.2 | 78.8 9.1 8.2 14.0 31 | 5.8 22.7 38.3 | 43.8 21.2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 83.7 85.8 ; 63.8 61.7 60.1 524 6l6 54.8 58.4 16.3 14.2 36.2 38.3 39.9 47.6 38.4 45.2 41.6 100.0 100.0 = 100.0 100.0 100.0 100.0 100.0 100.0 100.0 96.0 99.1 92.9 80.1 | 57.2 62.3 64.2 58.4 | 64.8 4.0 0.9 7.1 19.9 42.8 37.7 35.8 41.6 35.2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1000 ' 100.0 959. | 889 | 54.8 67.3 53.4 | 61.2 680 , 563 | 60.5 4.1 11.1 45.2 32.7 46.6 38.8 32.0 43.7 39.5 100.0 100.0 ' 100.0 100.0 100.0 100.0 ' 100.0 100.0 100.0 97.9 | 957 , 7LS 62.5 | 624 689 | 65.4 62.8 65.3 2.1 43 28.5 37.5 37.6 31.1 34.6 37.2 34.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ' 100.0 100.0 90.3 84.4 73.7 70.1 70.4 760 | 194 | 797 75.2 9.7 156 | 263 29.9 29.6 24.0 20.6 20.3 24.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 93.2 93.0 83.1 77.9 82.8 75.5 69.5 65.9 74.8 6.8 70 + 16.9 EX 17.2 24.5 30.5 34.1 25.2 100.0 100.0 ' 100.0 | 100.0 100.0 100.0 100.0 100.0 100.0 99.5 99.1 71.2 66.2 60.8 62.8 | 61.7 53.8 61.8 0.5 0.9 | 28.8 33.8 39.2 37.2 38.3 46.2 38.2 100.0 100.0 1100.0 100.0 100.0 100.0 100.0 100.0 | 100.0 22 THE FISCAL PROBLEM IN MISSOURI a period of years provide a better basis for interpretation than do the data for individual years, since there are ordinarily considerable variations from year to year. Consideration of the variations in the several states over a period of years might be valuable, but the summary data are to be preferred for the present purposes. Table 6 shows that for the six-year period only Illinois expended a larger amount for highways than did Missouri. On the other hand, expenditures for education in five states exceeded those in Missouri! These five states and Iowa each expended a larger sum for social welfare. Missouri ranked fifth in expenditures for protection, fourth in those for general government, and seventh in those for economic development. The data in Table 6 form the basis for the derivative data in Table 7. This table shows that for the six-year period highways accounted for 47.39, of the net total expenditures of Missouri, a larger proportion than in any other state in the group. Likewise, the proportion of total capital expenditures attributable to highways was not exceeded by any state, and reference to Table 6 indicates that the proportion of highway expenditures for capital purposes was larger in Missouri than in any other state except Illinois. The predominance of highway expenditures in Missouri fiscal affairs during the period in question, which has been noted previously, is thus exhibited in a striking way by the comparative statistics of expenditures in Missouri and in other states. The figures indicate clearly that Missouri’s expenditures for highways, particularly those for capital purposes, were unusually large. The proportion of total Missouri expenditures assignable to the other functions, considered as a group, was smaller than in any other state, in consequence of the high proportion of highway expenditures in Missouri. One comparison that can be made may be significant. In relation to net total state expenditures, Missouri’s expenditures for social welfare were smaller than those of 8 other states? in the group, while Missouri’s capital expenditures for this purpose were rela-1 Minnesota, Illinois, Indiana, Ohio, and Wisconsin. 2 Only Kansas. Arkansas, and Kentucky show a smaller proportion than Missouri. STATE AND LOCAL EXPENDITURES 23 tively lower than those of all but 2 states! When it is considered that Missouri’s capital expenditures for social welfare amounted to less than $1.4 million during the period, or only about 0.5% of total expenditures for maintenance and capital purposes, there seems to be little doubt that Missouri in recent years has failed to develop its social welfare institutions in a manner commensurate with the needs of the state, ExPENDITURES OF Missouri Local GOVERNMENTS The gross expenditures of all local governments in Missouri for the fiscal year ended in 1928 are estimated at $163.6 million.? Of this amount, the four cities over 30,0003 accounted for 390.6 million. The latter figure includes the expenditures of school and other special districts within the four cities, and interest payments. It does not, however, include payments for debt redemption. Without making any allowance for the latter factor, it would appear that the expenditures of local governments other than those of and within the four cities amounted to slightly less than 459, of the gross total for all local governmental divisions. The statistical information concerning local expenditures in Missouri, as previously stated, is not entirely satisfactory. Complete information is available concerning certain governmental expenditures, but the data concerning others are incomplete or unavailable. The best method of procedure, therefore, would seem to be to consider the expenditures for which data are available or can be reasonably estimated and then by a process of elimination to obtain an estimated total for all other expenditures. The data for cities over 30,000 are complete for all governmental functions with the exception that the expenditures of those cities for debt redemption cannot be segregated from the total for all local governments. Accordingly, a later section of this chapter will be devoted to the expenditures of cities over 30.000. ! Arkansas and Kentucky. * For method of obtaining this estimate, see Appendix B, p. 356. ' St. Louis, Kansas City, St. Joseph, and Springfield. TasLE 6: Functional DistriBuTioN oF NET EXPENDITURES OF STATE GOVERNMENTS, MISSOURI AND OtHER STATES, 1923-1928 Source: United States Bureau of the Census, Financial Statistics of States Series Computed by National Industrial Conference Board pame Protection | Education | Highways | Supe on | Miscellaneous’ gan Missouri: maintenance. ..... 316,087,9541829,006,824 $56,584,178|$12,095,952( $7,402,151 $24,420,607 $76,235 capital. ..........0 7949291 521496) 3.226,110(113,261,734| 186455 1,364,552 total.......... 16,882,883] 29,528.320| 59,810,288|125,357,686| 7,588,608 | 25,785,159" 76,235 Minnesota: maintenance. ..... 10,806,058] 24,962,389] 91,229,921| 26,619,212| 20,038,870 ° 24,466,999 1,894,545 capital. ......... 186,202] 1,299,161 8,352,188 59,378,354 795,452, 3,504,905 total.......... 10,992,260| 26,261,550| 99,582,109| 85,997,566 20,834,322 + 27,971,904] 1,894,545 maintenance. .... 9,713,690| 36,668,263| 41,456,157) 12,982,375| 11,855,037 | 24,771,019] 764,694 capital. ......... 115.210] 745.951| 12,871,223] 68.969,931| 1,039,184 2,391,274 22,500 total.......... 9,828,900| 37,414,214| 54,327,380] 81,952,306! 12,894,221 27,162,293] 787,194 Nebraska: maintenance. .... 4,908,039] 7,552,870| 25,756,901 5,194,578] 5,435,516 8,629,029 184,858 capital. ......... 6233676 595.424 3,602,357 24,722,824 364,197 1,196,491 632 total.......... 11,141,715] 8,148,294] 29,359,258 29,917,402} 5,799,712 9,825,520 185,490 maintenance. .... 6,426,773] 44,396,418| 32,884,862 5,304,010! 4,575,675 1,685,007] 26,030 capital. ......... 89.861) 1,436,678) 4,340,861, 21015929! 109,611 1,384,291! .. totals seine i 6,516,634] 45,833,096! 37,725,723 26,319,939! 4,685,286 13,069,29¢" 26,030 Oklahoma: maintenance. .....I 8,404,049] 16,214,589! 39,934,655 8,881,736] 4,545,068 13,402,181] 1,149,291 capital. ......... 603,484] 975.132] 5750,841| 53,218,714] 144,677 5,556,121) 6,747 total.......... 9,007,533] 17,189,721| 45,685,496! 62,100,450] 4,689,745 18,958,302] 1,156,03¢ BD # Towa: maintenance. .... 5,200,605] 14,281,933] 27,642,932] 10,171,635] 3,477,280 5833868 382,704 2828401 67,273,797 capital. ......... 84,415 527,533 1,607,753] 33,685,960] 75383 267,208] 1,136 311,143 36,560,531 total.......... 5285020] 14,809,466 29,250,685] 43,857,595] 3,552,663 6,101,076] 383,840 593983 103,834,328 maintenance. .... 29,110,202] 98,631,430| 86,449,279 12,866,076 15,015,223 55,859,439] 1,066,594 ' 201,466" 299,199,709 capital. ......... 451,535| 6,055,236] 11,104,567/169,251,473] 1.781.836 6,901,300] = 9.139 195,555,086 total.......... 29,561,737|104,686,666| 97,553,846 182,117,549] 16,797,059 62,760,739] 1,075,733 201,466 | 494,754,795 maintenance. .... 7,687,552] 20,062,512] 55,430,656! 33,839,891] 6,999,711 20,815,898] 176,127 .. 145,012,347 capital. ........ 50,504 4,525,389] 6,584,036] 55,184,181] 1,536.3411 9128025 4.347 i» 77,012,913 total......... 7,738,146] 24,587,901| 62,014,692' 89,024,072] 8,536,052 29,943,927 180,474 222,025,260 maintenance. .... 17,307,119] 39,469,316! 56,405,432’ 51,158,290' 12,535,454 42,634,397 1,364,470 601,132 | 221,476,110 capital. ......... 194,447] 4,276,159! 12,171,525" 46,420,887' 1,799,014 7.773.849] ~ 4294 477.607 73.117.782 total.......... 17,501,566] 43,745,475" 68,576,957 97,579,177 14,334,468 50,408,746| 1,368,764 1,078,739 294,593,892 3 — ———_ T——————, ‘———— | —— i ——— | rr na: —— Wisconsin: maintenance. .... 12,238,202| 19,865,203] 69,472,003" 21,750,164| 14,233,460 29,405,194] 738,130 .. 167,702,356 capital. ......... 210,526 610,329] 7,705,368: 45,361,942 483,831 2,166,58¢ .. 56,538,582 total.......... 12,448,728" 20,47" cl 77.377 “71! £7 110,106 14717291 | 31,571,780 738,130 | .. 224,240,938 ——— | ————— | — 1 — — =| o———— S—— ———————— | wte————— | a————————————— Kentucky: maintenance. ..... 17,876,776] 10,064,727 41,0C* #2 17 817 208) 5,592,498 | 10,778,993 295,347 . 99,426,561 mapital. cowie noes, 63,161 212,267 4,235, '4' 55,181,.64 309,585 429,719 .. ve 61,432,470 total. ......... | 17,030,037 10,276,994] 45,040,186] 69,995,772] 5,902,083 11,208,712] 295,347 160,859,031 L These totals are slightly larger than the comparable figures in Table 3. For explanation of differences, see Appendix B. Arkansas: TaBLE 7: PercENTAGE DisTriBuTiION OF FuncTionaL ExPENDITURES! oF STATE GOVERNMENTS, Missouri AND OTHER STATES, 1923-1928 Computed by National Industrial Conference Board State Missouri: maintenance. ....... capital. ........... total. ........... Minnesota: maintenance. ...... capital. ........... total. ........... maintenance. ...... capital. ........... total. ........... Nebraska: maintenance. ...... capital........... total. ........... maintenance. ...... capital; ; oes vimvns total ............ Oklahoma: maintenance. ...... Capa « svn 2 wna total, ; eu 4 sean ND ™ Towa: . General | . . Economic I Social Government | Protection Highways | Development| Welfare 11.0 19.9 £2 51 16.8 0.7 | 0.4 7! 99 0.2 1.1 6.4 11.1 22.6 47.3 25 ¢ 97 ® 5.4 125 |, 45.6 133 | 100 122 | 10 0.2 1.8 11.3 80.8 1.1 48 .. 4.0 9.6 36.4 3.5 © 71.6 10.2 0.7 7.0 26.5 30.0 94 | 86 17.9 0.6 0.1 0.9 14.9 80.1 1.2 2.8 ©) 44 16.7 242 | 365 57 121! 04 8.5 13.1 44.7 9.0 9.4 150 |. 03 .. 170 1.6 9.8 3 | 10 33 e 1 11.8 8.6 3.1 317 0 62 104 "02 60 | 413 306 | 49 1 43 | 109 | @ | 20 0° 5.0 16.7 72.8 (“ 48 .. 48 ' 334 27.7 19.3 - 94 3) 14 ENE | 17.7 45.2 # 14 | 12 0.9 1.- 27 | ou Co $.4 ® 57 | 108 28.8 39.1 30 ' 119 | 07 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 | 100.0 100.0 ~ 1T000 maintenance. ...... 7.7 21.2 41.1 15.1 5.2 8.7 0.6 0.4 100.0 capital. ........... 0.2 1.5 4.4 92.1 0.2 0.7 ® 0.9 100.0 total. .....u..n. 5.1 14.3 28.2 42.2 3.4 5.9 03 06 ° 1000 maintenance. ...... 9.7 33.0 28.9 4.3 | 5.0 18.7 0.3 | 0.1 | 100.0 papal. cues wicacan 0.2 3.1 57 86.6 0.9 3.5 ® .. 100.0 total. ........... 6.0 21.1 19.7 36.8 34 . 12.7 0.2 | 0.1 100.0 maintenance. ....... 5.3 13.8 38.2 234 | 48 14.4 0.1 .. | 1000 capital............ 0.1 59 8.5 71.7 2.0 11.8 ®) - 100.0 total. ........... 3.5 11.1 27.9 40.1 38 13.5 0.1 .. © 100.0 maintenance. ...... 7.8 178 | 25.5 81 | 57 19.2 0.6 03 | 1000 capital. ........... 0.3 58 16.6 63.5 2.5 10.6 ® 0.7 100.0 total. ...... .. 59 14.8 23.3 33.1 4.9 ; 17.1 0.5 0.4 100.0 —— — — ————— | ————— c————— A—— ————— N Wisconsin: maintenance... . 73 11.9 | 41.4 13.0 | 8.5 17.5 04 |... | 1000 capital. ..... . . 0.4 1.1 13.6 80.2 -0.9 3.8 - . 100.0 totale. snninases 5.6 9.1 34.4 29.9 6.6 14.1 03 | 4 100.0 Kentucky: maintenance.... ... 18.0 10.1 41.2 13.9 5.6 10.9 0.3 | .. 100.0 capital. ........ .. 0.1 0.3 6.9 91.5 0.5 0.7 .. .. 100.0 total... .......' ILI 64 281 | 435 a7 70 on 1000 1 Net expenditures only. . 2] ess than one tenth of one per cent. 28 THE FISCAL PROBLEM IN MISSOURI Expenditures for School Purposes Local expenditures for all public school purposes, including interest and sinking fund payments on school indebtedness, amounted to $52.5 million for the school year ended in 1928, or approximately one third of the total local expenditures. According to the data presented in Table 8, school expenditures for that year were smaller than in either of the two years preceding, and there was a further decline in 1929. As will be seen in the chapter* on Public School Finance, the decline in the latter year 1s largely attributable to decreased expenditures for building purposes. TasLe 8: PusLic Scuoor ExpPeNDITURES IN Missouri, 1915-1929 Source: Renorts of the Public Schools of the State of Missouri Year Ending June 30 | Total Expenditures 1915 $19,662,772 1916 19,490 « 1917 | 19733; 1918 92.815 |g1Q 21.94% .4 “ear nr npe Total Expenditures nT N4Q ne) 1) A. a4 7 Year Ending lune 30 1925 1924 1927 19% 1QN0C Total Expenditures <9 Ts 3 0s h 3] 73 Expenditures for schools amounted to only $19.7 million for the school year ended in 1915, and the total for each of the next two years was approximately the same. By 1922 the total had more than doubled, and for the school year ended in 1927 school expenditures reached a peak of $55.2 million, or an amount approximately 2.8 times as great as that for the school year ended in 1915.2 Various reasons may be advanced for the rapid increase in school expenditures between 1915 and 1927. In the first place, the changes in the price level are significant, although it is evident from Table 8 that total school expenditures did not follow the general trend of prices. The reasons are obvious. Teachers’ salaries are not subject to immediate adjustment when the price level undergoes sudden changes. Then, too, the outlay for school purposes naturally varies with changes in the markets for labor and building materials. 1 See Chapter VIII. 2 School expenditures for the period 1915 through 1929 are considered by items of expenditure in Chapter VIII. STATE AND LOCAL EXPENDITURES 29 When the prices of labor and materials increase rapidly, the most likely reaction is a curtailment of school construction. When these prices fall, the volume of construction increases. Consequently the figures for total school expenditures do not reflect the decline that otherwise might be expected because of the lower price level. While variations in school expenditures from year to year are not explainable on the basis of price level changes, the latter are, nevertheless, important in accounting for the change in expenditures between a year like 1927 or 1929 and a year considerably earlier, such as 1915 or any of the years preceding. Other important factors in the growth of school expenditures are the increase in the school population and the shift of population from the country to the urban centers. The increase in the number of pupils enrolled in Missouri schools has not been particularly rapid, but even a small increase frequently represents a problem which those in authority must try to solve by adjusting existing facilities or by providing for additions to the teaching staff or the school plant, or both. Even more significant is the trend in the distribution of population between the urban centers and the rural sections of the state. Today more than one half of the population of Missouri is classified as urban. The movement from the farm has been particularly rapid during the past decade. Educational facilities in urban communities are relatively more expensive and are more adequate on the whole than are those in rural sections. A population shift such as has recently occurred in Missouri is naturally reflected in an increase in school expenditures at a more rapid rate than the increase in total or in school population. These factors, together with the higher educational standards that are constantly demanded, constitute the most important reasons for the rise in the level of local school expenditures. Expenditures for Local Roads Table 9 shows the disbursements for local roads for the years 1921 to 1929. The data presented in this table do not include the expenditures of the state for highway construction and maintenance. Neither do the data include the expenditures of cities and incorporated towns for streets and TaBre 9: Locar Hicaway DissurseMENTS IN Missouri, 1921-1929 T9292 1974 itr p— — Character of Expenditure Construction. ......... Maintenance. ......... Miscellaneous. ........ Net total. ......... Interest. .............0 Debt redemption. ..... Gross total. ....... 1923 ' 1904s 1925 $5,013,624 4.691.238 896,630 11,501.492 87.454 19783 19293 34,595,654 5.461.213 457.227 $1,217,402 5,702,083 235657 $3,200,000 5,365,000 964.600 1,344 268 +.828,353 1435075 $7,150,000 4735.00 1.950.000 13.832.000 10.514.094 R.9585.147 9 £99 £00 10 607.696 619,000 1,850,000 16,304,000 1 U.S. Dept. of Agriculture, Bulletin No. 1279, p. 63. 2Ibid,,p. 16. 3 Data from tabulations prepared by U. S. Bureau of Public Roads. t Includes disbursements on account of interest. STATE AND LOCAL EXPENDITURES 31 bridges. The figures represent all local expenditures on account of rural roads that are not a part of the state highway system. Net local expenditures in Missouri for rural roads amounted to $13.8 million in 1929; gross expenditures, which include payments for interest and debt redemption, amounted to $16.3 million. The net and gross totals for that year were exceeded only in 1924. It will be recalled that in recent years the highway expenditures of the state were predominantly for capital purposes. Table 9 shows that in only four of the years of the period 1923 through 1929 were local expenditures for construction larger than those for maintenance. For the period as a whole, however, expenditures for construction exceeded those for maintenance by slightly more than one third. Local expenditures for interest on funds borrowed for rural road purposes did not exceed one million dollars in any year for which data are given, and the 1929 amount was only $619,000. This indicates a relatively small amount of county and other local indebtedness for road purposes. It is apparent that a large part of the financing of local roads has been accomplished without recourse to borrowing. In order to obtain a complete picture of local expenditures for road purposes, including streets and bridges maintained by cities and incorporated towns, it is necessary to add the expenditures of cities over 30,000 that are classified as for highway purposes and the expenditures of all other cities and incorporated towns for streets, bridges, and the like. The net expenditures for rural roads amounted to $10.6 million in 1928; the net total expended by Missouri’s four cities over 30,000 for highways was $15.1 million; and the highway expenditures of all cities under 30,000, including incorporated towns, are conservatively estimated at $3 million. These figures make up a total of $28.7 million for net total local highway expenditures. Because of the inclusion of the estimated amount of $3 million, it follows that there is some margin of error in the total. However, since the estimated amount is very small in relation to the total, the margin of error is no doubt slight. 32 THE FISCAL PROBLEM IN MISSOURI Expenditures for Other Functions Only scattered information is available concerning the local expenditures other than for schools and roads.! Figures for debt retirements are compiled annually by the Commercial and Financial Chronicle and are issued in a publication entitled State and Municipal Compendium. According to this publication, the local governments in Missouri paid off bonded debt obligations during 1928 in the amount of $7,832,810.2 This figure comprises one of the two component parts forming a total commonly designated as debt service. The other part, interest, is difficult to estimate, as the debt obligations of certain local governments bear rates of interest that vary considerably. It is believed that total interest payments of all local governments in Missouri amounted to approximately $7.9 million in the fiscal year ended in 1928. This estimate was obtained? by using the interest payments of the four large cities for that year and adding an estimated amount for other local governments. Adding this estimate to the previous total for debt redemption, the total for debt service becomes $15.7 million. The gross total of local expenditures for the fiscal year ended in 1928 has been estimated as $163.6 million. The total for the functions that have been considered amounted to approximately $96.9 million in that year. This amount, however, involves certain duplications, only $2.0 million of which can be eliminated. The total as given, when reduced by that amount, becomes $94.9 million. Deducting the last amount from the gross total of $163.6 million leaves a remainder of $68.7 million to be attributed to other governmental functions.® Of the latter amount, $48.9 million are attributable to the four cities over 30,000, and it would therefore appear that only $19.8 million were expended by other local governments for the remaining functions. The figure of $19.8 million, however, should be regarded as a 1 This statement does not apply to the data for cities over 30,000. ? State and Municipal Compendium, June 28, 1929, p. 15. 3 For complete details of basis of estimating, see Appendix B. 4 See Appendix B for explanation of duplications. $ General government, protection, social welfare, public utilities, and miscellaneous. STATE AND LOCAL EXPENDITURES 33 minimum, because of duplications in the expenditures for debt service and school purposes. Since these duplications cannot be entirely eliminated from the data, it seems preferable to state that the expenditures of local governments other than cities over 30,000 for the five functions may be estimated as between $19 million and $22 million. Expenditures of Cities over 30,000 The combined expenditures of the four Missouri cities having a population of more than 30,000 are shown in Tables 10 and 11 for the fiscal years ended in 1913, 1918, and 1923 to 1928. Table 10 indicates that the net expenditures of these cities amounted to $77.0 million for the fiscal year ended in 1928, as compared with $30.2 million for 1913 and $50.6 million for 1923. In other words, net expenditures in 1923 were two thirds larger than in 1913, and the net total for 1928 was more than two and one half times as large as that for 1913. When the amounts expended for interest and public utilities are included, the relation between the totals remains approximately the same, with the exception that the increase from 1923 to 1928 is even more marked. While the population of these cities increased during the period for which data are given, the rate of growth was not proportionate to the increase in total expenditures, and it therefore follows that the per capita cost of city government increased. An expanding urban population frequently is the cause of an increase in per capita expenditures, for additional facilities must be provided for school purposes, streets must be laid out and built as the limits of the city are extended, and adequate sanitation and other facilities provided by government become relatively more expensive. These factors were in evidence throughout the period. Another factor was the improvement of educational standards. Reference to Table 10 shows that, while net expenditures in recent years for all functions were about two and one half times those of 1913, school expenditures were approximately three times as large, amounting to $23.8 million in 1927 and $21.6 million in 1928. The decrease in 1928 is attributable to a decline in capital outlays for building purposes. Not only did educational expenditures increase Tasre 10: Compinep ExpenDrrures oF St. Louis City, Kansas City, ST. JOSEPH, AND SPRINGFIELD, 1913, 1918, anp 1923-1928 Source: United States Bureau of the Census, Financial Statistics of Cities series Character of Expenditure 1918 1923 Tron 1925 1926 1927 1 1928 General government: maintenance. $2,970,180 $4,747,796 $4,795,112 $4,939,324 $4,857,984 I $5,188,901 $5,401,147 capital. ... .. 5,383 10,002 14003 © 179,002 134918 1,000,229 | 2,148,642 total... ... 2.075.563 | 4757888 4,809,115 ' 5,118,326 4992907 6,189,130 | 7,549,789 maintenance. 6,277,340 | 9,526,998 10,238,076 10,818,369 , 11,743,417 13,080,278 12,464,311 capital. ..... 675.034 435214 304497 275000 524096 464,876 1,296,147 total...... 6952374 © 9.962012 10,542,573 11,093,478 | 12267513 13 545,154 ' 13,760,458 maintenance. 7,925,638 14,409,574 | 14,965,749 15,693,743 17,178,573 17,879,848 18,528,600 pn 1302386 3444669 4ASL853 5266078 5440,821 5895194 3,021,966 total...... 9.318.024 17.854243 ' 19.447,602 20,959,821 ' 22,619,394 23,775,042 ° 21,550,566 maintenance. 2,355,457 2,764,764 3,966,539 4,762,851 4,450,293 4,706,114 ' 5271,133 4,515,496 capital. ..... 4183.83¢ 4627025 3,540,594 4,557.083 ' 6,389,450 | 5,856,594 10,921,623 10,537,206 total...... 6539292 7,391,789 7,507,133 ' 9,319,934 11,339,743 10,562,708 16,192,7% 15,052,702 maintenance. 3,847,175 4,630,723 6,865,244 ' 7,566,200 | 8,088,721 | 8212270 8,953,031 | 9,047,033 capital...... 4654404 1.594000 = 3047487 2160123 | 3354175 9,033,675 7,830,910 = 9,650,529 total. ..... 8.501579 ' 6,224,723 | 9912731 9,726,323 11.447.896 17,245945 16,783,941 | 18,697,562 maintenance. .! 251,322 | 404,752 | $60,912 | 613,954 | “wi 397,651) 396,001 | 415916 capital. ...... 4276 1800 «27.792 21,371 ‘ 1,128 1,035 685 total...... 255598 | 406,552 588,704 635325 | 44e248 398,779 397,036 | 416,601 Protection! ~ . + Education: AC maintenance. . capital. ..... total...... Public utilities: maintenance. . capital... ... total...... Net total: 9,363,195 14,973,397 40,077,06. 42,941,942 44436254 47,096,009 30,769,192 50,372,503 10,838,342 8,295,628 10,505,848 11,538,930 15,966,258 20,991,232 26,113,867 26,655,175 30,201,541 33260025 50,582,911 54,480,872 60,402,512 68,087,241 76883059 ' 77,027,678 2,507,473 | 2,563,836 | 3,469,348 4,317,153 3,932,251 | 4,004,121 42311,681 | 3,968,536 1027753 1.116221 420,121 1242,899 3,068,568 | 7,199,210 5,758,541 4,554,090 3,534,726 | 3,680,057 3,8%0460 5,560,052 7,000,819 | 11,223,331 10,070,222 | 8,522,626 [NtreSt. . .vovnrennrsnnennenn.. 1,578,224 | 1,742,149 | 2,044,808 | 2,329,062 | 2,078,727 | 3,522,972 | 4,031,996 | 5,066,902 Gross total, not including debt re- : | demption. . .. © 314,491 | 38,691,231 | 56,517,188 | 62,369,986 ' 70,382,058 | 82,833,544 | 90.0877 | 90,617,206 1 Expenditures for these functions in 1913 are not comparable to those for the later vears. See Appendix B. TaeLe 11: Percentage DistrizuTion oF ComBINED NET AnD Gross Expenprrurest or St. Louls Crry, Kansas City, St. JosEPH, AND SPRINGFIELD, 1913, 1918, 1923-1928 Computed by National Industrial Conference Board Character of Expenditure | Tis is ger Doge © Thos TT 1s | ww | 128 Percentage Distribution of Net Expenditures for Maintenance and Capital BW | 92 78.8 | "736 | EE 35.9 24.9 20.8 21.2 26.4 30.8 34.0 34.6 100.0 100.0 | 1000 | 100.0 | 1000 100.0 100.0 100.0 Percentage Distribution of Cambined Net Expenditures ~ w General government. . Protection. . ..... Education. ....... i Highways. .............c..oove oe Social welfare. ................ . Miscellaneous? . Combined net total 1 . 16.4 20.9 24.9 28.0 21.7 22.2 28.1 18.7 0.8 1.2 00.0 | 1000 : “8 7 19.4 1# 18.0 i 35.3 35.7 34.7 33.2 30.9 14.8 17.1 18.8 155 | 21.1 196 | 178 189 25.3 21.9 12 12 0.7 0.6 0.5 100.0 monn 100.0 13 28.0 19.5 24.3 0.5 100.0 Percentage Distribution of Combined Gross Fxvenditures General government. . . Protection?. . . .... . Education. ..... «toni Highways ....... eee Social welfare?.................... Miscellaneous? . .................. Public utilities. BH 1 4 8 § BREE 5 Interest..... REA Combined gross totall. ....... .. 100.0, 1000 1 Exclusive of debt redemption. 2 See footnote !, Table 10. 1.6 | 19.1 13.3 16.1 17.6 1.0 1.0 9.5 6.9 4.5 34 1000 52 15.0 15.6 1.0 8.9 37 100 Nn 1 29.8 16.1 16.2 0.6 10.0 4.2 000 “a 8 27.3 12.8 20.8 0.5 13 8 ax 100 N 3 15.2 23.8 16.6 20.6 0.5 9.4 5.6 1000 | 1000 STATE AND LOCAL EXPENDITURES 37 at a more rapid rate than city expenditures in general, but in each year this function out-ranked all others on the basis of the total amounts expended. During the period 1923 through 1928 education accounted for considerably more than 309, of net expenditures and 259%, of gross expenditures, not including debt redemption. In fact, in only one year of the period, 1928, were educational expenditures less than 309, of the net total. On the basis of total net expenditures, other city functions ranked as follows in 1928: social welfare, highways, protection, general government, and miscellaneous. When the functional data for the four cities are combined it is found that capital expenditures exclusive of those for public utilities amounted to $26.7 million for 1928, or 34.6% of net total expenditures. Of this amount, highways accounted for more than $10.5 million, and capital outlays for social welfare institutions formed the largest part of the remainder. These two functions and education normally require considerable capital additions as population expands and standards in governmental service are improved. In the years prior to 1928 capital expenditures did not form so large a part of the net total as in that year. In each year, however, they comprised more than 209, of the net total. Comparison of the distribution of city expenditures between maintenance and capital with the same distribution for the state government brings out the fact that the cities have been expending funds for capital additions for a number of governmental functions, while the state has confined its capital expenditures mainly to one function, highways. The data indicate that the capital expenditures of the city governments have been diversified in response to the many and varied needs of the growing urban population. On the other hand, it would seem that the state government has concentrated on highway construction and has not developed various state institutions to an extent commensurate with the normal growth of the state. Information concerning the expenditures of St. Louis, Kansas City, St. Joseph, and Springfield is given in Tables 12, 13, 14, and 15. Extended comment is not necessary, Taser 12: Expenprtrures or THE City or St. Louis, 1913, 1918, anp 1923-1928 Source: United States Bureau of the Census, Financial Statistics of Cities series Character of Expenditure General government: maintenance....... capital. .......... Protection:! maintenance. ..... capital. .......... maintenance. ..... capital. .......... maintenance. ..... eapital, . oss men re maintenance. ..... capital. .......... maintenance. ..... capital. .......... maintenance. . .... capital... ...... Combined net total. . Public utilities: maintenance. ...... capital. ........... Total public utilities. . . Somern & § » Interest. . ....uvvneini ria Gross total, not including debt redemption 1 See footnote 1, Table 10. 1913 1918 31,661,980 61,153 3,420,209 47,893 3,564,240 889,883 1,740,252 2,087,413 2,821,172 1,868,657 191,026 13,398,879 4.954.999 $1,704,74¢ 5,048 4,351,951 182,834 4,873,925 1,017,21€ 1,785,999 2,314,836 3,287,412 851,592 277.653 1,800 16,281,679 4.373.30F MASE ONS 1923 27 726.806 1924 22 503.751 6,295,052 161,473 8,274,97C 1,370,715 2,329,098 2,020,170 1,713,422 881,688 417,100 27,544 24,756,448 4 461.694 6,698,077 107,657 8,384,177 1,988,433 2.797.171 3,492,226 5,041,398 1,620,370 377,166 21,371 25,801,734 7920 087 18,353 &7¢ 99.918 047 313.031.7932 2,268 18 2,199 079 164,657 647.009 2,135,443 2,326,792 | 2,432,732 2,846,988 L027i09 977.379) ‘945919 980.317 217516430 | 23.959 176 | 32.596.693 | 36.859.098 1925 %2 876.019 7,419,314 1,111,899 3.970.582 2,298,271 2,618,161 6,149,612 5,714,156 2,577,242 318.607 27,916,839 11,137,024 39.053. 863 220% 19%, 4,205 1,288,774 a4 £47 750 $2.590,550 12,896 8,183,980 304,06€ 10,000,098 2,034,597 2,585,903 4,338,932 5,656,618 2,706,295 276,381 1,030 29,293,530 9.397.817 1926 38 691.347 2.270,4< 1 3.671.089 5,941,554 1,563,608 46.196.509 1927 $2,930,902 593.761 9,388,292 223,306 10,366,543 2,581,71C 2,654,642 8,432,404 6,035,802 5,220,304 287.187 31,663,368 17.051 488 48.714 .856 2,371 477 2,510.405 1 4,881,241 1.645.873 | ¢s'347 c70 $2,791,196 1,941,269 8,751,438 822.502 10,753,622 1,793,350 2,427,681 7,670,655 6,026,073 5,734,087 277.615 31,027,625 17,961,863 48.989,488 2,326,912 3.238.345 5,565,257 2,296,542 56.851,287 1928 TasLE 13: ExpenpITURES oF Kansas City, 1913, 1918, anp 1923-1928 Source: United States Bureau of the Census, Financial Statistics of Cities series 3 ~ Character of Expenditure General government: maintenance. ...... capital. ........... maintenance. ...... capital. ........... maintenance. ...... sapital woman esas sy maintenance. ..... capital .......... maintenance. ..... capital. .......... maintenance. ..... capital. ........... maintenance. ...... napital., . . 1913 $593,737 8.250 1.060.568 1,615,567 860,415 509,017 1,371,868 944,819 2,522,844 43,895 4,767,603 4,763,377 9,530,980 1,182,846 214.568 Combined net total Public utilities: maintenance. ...... capital. ... LL Total public utilities. . oo] 1,397,414 =] 435,244 Gross total, not including debt redemption .| 11,363,638 1 See footnote 1, Table 10, 1918 $1,146,048 66 1,488,448 489,994 2,332,899 226,456 840,768 1,993.780 195,812 688,131 117.148 7,121,123 1.308 427 10.519.550 926,403 421,165 1,347,568 653.723 12.520°841 i973 $1,884,547 9,766 2,593,371 69.948 1,930,060 1,798,398 1,494,497 1,416,505 1,940,854 2,070,207 123499 2,966,828 344 874 18.331.652 1,195,626 255.314 1,451,000 1,014,972 90.797 674 $2,127,747 13,755 2,895,163 122,695 5,185,434 2,371,603 1,736,494 477,265 2,324,457 233,156 204,707 14,474,002 3218 474 1924 17.692.476 2,110,866 594.792 2,705,658 1,180,586 21.878 790 1925 $1,899,950 7,015 2,749,074 141,678 5,326,632 2,856,524 1,617,782 297,678 2,116,411 122,409 89,100 2.44 3,798.0. 3.427.748 17.226.697 1,602,332 1,087,157 2,689,489 1,457,142 1.373.398 1926 $2,092,381 505 2,858,843 192,051 5,743,474 3,079,078 1,882,524 846,593 2,275,533 5,291,868 93,642 QF 14,946,4” 9.410.193 24,356.53 174% 2 3.528.421 5,276,093 1,767,881 21400 567 $2,081,560 10,556 2,974,565 225,013 6,008,137 3,275,501 2,382,554 1,545.99: 2,650,914 2,059,02; 99,74] "6,197,467 7.116.086 1927 23,313.55] 1,07 51 3,248,136 vt 5,181,897 | 2,186,812 30,682,262 1928 $2,434,453 17,368 2,961,833 458,360 6,238,583 1,171,159 1,845,080 1,891,279 2,758,006 1,618,986 111,544 685 16,349,499 5,157.837 21,507,336 1,634,683 1,315,745 2,950,428 2,492,841 26,950,605 TaBLE 14: EXPENDITURES OF ST. JosePH, 1913, 1918, anp 1923-1928 Source: United States Bureau of the Census, Financial Statistics of Cities series General government: maintenance. ..... capital. ........... Protection:! maintenance. ...... capital ........... Education: maintenance. ...... capital. ........... Highways: maintenance. ..... capital. .......... Social welfare maintenance. ..... capleal, .....o00n. Miscellaneous! maintenance. . .... capital. .......... Net total: maintenance. ..... capital. ....... . Character of Expenditure Combined net total Public utilities: maintenance. ..... capital... .... Total public utilities. [nterest.......... LI ITIL Gross total, not including debt redemption 1913 $76,064 280,269 29,326 386,506 3.493 66,116 208,510 65,752 103,502 11,450 4276 886.157 349,107 1,235,264 1,779 1,779 100,352 1.337 1Q¢€ 191% 1992 $78,148 269 316.351 £07 658 453,482 200,524 759,216 14,410 90,133 86,603 134,228 51,966 19,422 248 1,549,139 353.751 1,902,890 309 517,212 63,720 91,313 290,562 93.958 47,536 9.364 (,106,346 402,087 1,508,433 864 864 809 | 99,807 | 61,465 1600104 | 1.065164 1994 1975 $114.454 466,763 50,330 924,051 17,012 169,248 556,969 119,254 274,308 30.088 $115,445 171,987 479,234 4,753 926,039 18,416 147,212 387,697 165.265 567,842 37072 1,823,858 899.119 2.722.977 2,506 2,506 1,082 | 115,616 | 193,543 9.841000 | 32715287 1926 $125,147 121,235 496,517 15.431 949,658 253,893 152,667 587,825 179,269 000,286 25,001 1,928,259 1'978.670 3.906,929 1.082 1,082 | 156,378 4 064 IRQ 1957 $123,404 395.912 504,684 3,517 927,853 27.336 150,958 614,680 139,129 459,908 5,426 1,05 1,851,654 1.502.388 3,354,042 1,083 1,083 166.227 ee 1928 $119,533 190,005 523,068 3.088 944,499 47,968 155,272 375.065 149.539 (782.718 21,511 1,913,422 2,398,344 4,312,266 1,083 1,083 | 205976 4.519.398 1 See footnote 1, Table 10. TasrLe 15: EXPENDITURES OF SPRINGFIELD, 1913, 1918, anp 1923-1928 Source: United States Bureau of the Census, Financial Statistics of Cities series Character of Expenditure General government: maintenance. ...... capital. ........... Protections! maintenance. ...... capital. oo. cove nee Education: maintenance. ...... capital............ Highways: maintenance....... sapital.......ollL Social welfare: maintenance. ...... capital. os wens ees Miscellaneous: maintenance. ...... capital. ........... Net total: naintenance....... ~apital. ...... Combined net total Public utilities: maintenance. ...... capital. ... Lo Total public utilities. . chi {nterest...... .. ...... Lol... Gross total, not including debt redemption | 1913 $32,258 2,057 70,677 48,794 147,170 44,563 40,072 516,044 15,432 159,401 4951 310,560 770.859 1,081,419 90 90 15,519 1097 008 1918 941.244 120,590 2,206 201,604 84.994 46,684 27,847 53,540 6.741 587 464,249 121.788 586.037 4,693 140 48M) 11,20: HOD 11D 1923 $43,785 326 185,093 3,269 445,328 261,142 52,811 17.316 76,740 43.626 891 804,648 325.679 1.130.327 4718 150 4,928 22,452 1 187 7077 1924 $49,160 248 178,073 23,815 472,091 104,805 59,938 30,623 81,091 31,789 1,993 842,346 191.280 1,033,626 3,802 1,098 4,900 52,543 1.091.040 1925 $47 910 170,747 16.779 470,490 92,867 67,138 54,463 92,889 86,682 1,025 850,199 250.791 .100,990 5,105 5,108 39,298 1.145393 1926 $49,906 282 204,075 12,548 485,343 73,253 85,020 83,243 100,850 35.226 2626 927,820 204.552 1.132.372 | 4.602 | 4,602 35,105 1.172.070 1927 $52,835 212,737 13,037 577,319 10,647 82,979 328,544 127.186 91.677 3647 1,056,703 443.905 1.500.608 5.401 5,401 33,084 1.530.097 1928 $55,965 227,972 12,197 591,896 9,489 87,463 600,207 113415 514,738 5.246 1,081,957 1,136,631 2,218,588 5.858 | 5.858 71.543 92057989 1See footnote 1, Table 10. 12 THE FISCAL PROBLEM IN MISSOURI since the combined data have been considered previously. It should be pointed out, however, that the expenditures of St. Louis City amount to more than one third of the estimated expenditures of all local governments in the state, and that the combined expenditures of St. Louis and Kansas City exceed one half of the total. ComBINED STATE AND Local EXPENDITURES The gross expenditures of the Missouri state government, as previously stated, amounted to $44.5 million in 1928, and the gross expenditures of all local governments to approximately $163.6 million. These figures indicate a gross total of $208.1 million for the state and local governments. This total, however, involves a duplication of certain state aid funds, which are treated as state expenditures. Subsequently these funds are expended by the local governments and are classified under the functions for which they were allotted by the state. State funds are allotted primarily for educational purposes, and the total for 1928 was $6.4 million.! Allowing for the duplication occasioned by state aid payments to local governments, it follows that the gross total expenditures of the state and local governments in Missouri amounted to $201.7 million for 1928. Includes $109,452 private car tax receipts, which were apportioned in 1928, CHAPTER II STATE AND LOCAL INDEBTEDNESS (Gros oa i policies in respect to public borrowing vary widely. Some governments take the stand that the pay-as-you-go policy should be adhered to strictly except in extreme emergencies. Others take the opposite view that borrowing is justified, provided that the credit of the government does not become unduly impaired and that the purposes for which the borrowed funds are to be used warrant recourse to this method of financing. Continued financing on the latter basis frequently results In an embarrassing situation, unless full provision is made for the funds required to meet interest and redemption payments at the time the indebtedness is incurred. If such provision is not made, the result in some cases may be an eventual impairment of credit, for few governmental units are so fortunately situated as to be able to finance any considerable volume of indebtedness without providing additional sources of revenue or augmenting the amounts obtained from existing sources. On the other hand, extreme adherence to the pay-as-you-go policy may restrict the development of governmental activities to such an extent that government may be charged with failing to make adequate provision for the well-being of its constituents. This is particularly true in a period of rapid social and economic changes. As will be seen, government in Missouri has not followed either extreme. The state government throughout its history has at times been almost on a pay-as-you-go basis. At other times borrowing has been resorted to freely, and even constitutional limitations on the borrowing power have been modified when circumstances seemed to warrant such a change. Similarly, the borrowing policies of local governments have undergone a series of changes, although the changes cannot be traced so readily as in the case of the state government. THE FISCAL PROBLEM IN MISSOURI History oF Missouri STATE INDEBTEDNESS “Missouri has had an eventful history in debt-making and debt-paying, but has met its trials, although severe, with credit.” Thus begins an interesting review of the history of state indebtedness in Missouri, published in 1893. Although Missouri was admitted as a state in 1820, there 1s no record of the issue of any state bonds prior to 1837, or during the formative period. The beginning of state indebtedness in 1837 was especially eventful, for the first issue of bonds did not find a responsive market, and only a small portion of the total was actually sold. The proceeds of the issue, $2.5 million, were to be used to provide the state’s half of the capital of a state bank, provision for which was made in the constitution of 1820.2 There was no particular reason to question the credit of the state, for at the time Missouri had no bonded indebtedness, but the state government made the mistake of trying to float an issue of bonds at a time when banks throughout the country were suspending operations at an unprecedented rate, and when, as a consequence, credit facilities of an adequate nature were practically non-existent. The country as a whole, moreover, was oversupplied with state securities, many of which were regarded skeptically by the investing public. As a result of this situation, only about $263,000 of the issue of $2.5 million found a market. Not only did Missouri's first effort to create indebtedness fail, but the second attempt was an even more dismal failure. In 1839 the legislature recalled the bonds of the previous issue and authorized another issue of like amount for the same purpose. The rate of interest, however, was increased from 5259, to 6%. Although offered in Europe as well as in the United States, only $139,000 of these bonds were sold. The act authorizing this issue had stipulated that the bank should accept the bonds in full payment of the state’s stock. Since the bonds were practically unsalable. the bank 1 State and City Supplement to the Commercial and Financial Chronicle, April, 1893, p. 111. 2 This constitution provided for a single state bank with not more than five branches to serve the entire state; $5,000,000 capitalization was fixed as a maxi. mum, STATE AND LOCAL INDEBTEDNESS 45 was without any real contribution to its capital by the state. When the bonds were returned to the bank, the legislature recognized the futility of its effort to assist the bank in this manner and accordingly recalled and cancelled the bonds. The second period in the history of Missouri state indebtedness began in 1853 and ended shortly after the close of the Civil War. As in the case of a number of mid-western states, the development of Missouri’s debt during the middle of the nineteenth century is closely intertwined with internal improvements, particularly railway development. In January, 1853, the legislature decided to make a bond loan of $7 million to the Pacific Railroad, which was to build a road from St. Louis to the western border of the state. The proceeds were used in obtaining the necessary materials and labor, as the land on which the road was built represented grants by the Federal Government to the state, which in turn made it available to the railroad company. Similar arrangements were made with the Hannibal and St. Joseph at the same time, and later with four other roads! and the Southwest Branch of the Pacific Railroad. The total amount of bonds authorized in this connection was $24,950,000, of which $15,310,000 had been issued by July, 1857. The total debt of the state on January 1, 1859, was officially announced as $19,658,000. Throughout this period Missouri took a liberal attitude toward the question of borrowing. Internal improvements were desired, and railroads in particular were deemed highly necessary to the economic development of the state. The credit of the state was therefore used to assist railroads and other internal improvements. The question of internal improvements, however, received little attention during the turbulent vears of the Civil War, 1861 to 1865. The third period extended from about 1866 to 1921. During this period a conservative policy was followed. From the beginning of the period to 1902 the general trend of indebtedness was downward. At the end of 1902 sinking fund assets exceeded the bonds outstanding, and for the first time in many years the state had no net bonded in-1 The St. Louis and Iron Mountain, the Cairo and Fulton, the North Missouri and the Platte County. 46 THE FISCAL PROBLEM IN MISSOURI debtedness whatever. The complete liquidation of the bonded debt was gradually accomplished, as a result of a policy that was adopted immediately after the close of the Civil War, when a funding act was passed in accordance with a constitutional amendment that had been approved. The principal and accumulated interest of the state debt, less certain offsetting assets, amounted to approximately $25 million on January 1, 1868. In consequence of the liquidation policy, a downward trend was almost immediately in evidence. By 1870 the debt had been reduced to $20.9 million, and on December 31, 1880, it was $19.5 million.! During the following decade the net bonded debt was reduced by more than $10 million, but the reduction in total net debt amounted to a little less than $8 million, since the debt to public trust funds had increased during the ten-year period. At the turn of the century Missouri’s net total indebtedness amounted to about $6 million, and the net bonded debt was only $1.7 million. On December 31, 1902, sinking fund assets, as noted, exceeded the bonds outstanding, and from that date until 1912 the state had no net bonded indebtedness. During these years the state debt consisted of school and seminary certificates of indebtedness and small amounts of floating debt in certain years. In no year did the total exceed $5 million. From 1912 to 1921 the state debt varied within narrow limits. At the end of 1912 the total net debt was less than $5 million; five years later it amounted to only a little over $7 million; and on December 31, 1921, it was reported as $5.9 million? Additional bonded indebtedness was incurred for building purposes, but the amounts involved were relatively small as compared with the borrowings of more recent years. Since the state did not consciously adopt an extensive borrowing policy until 1920-1922, the years from 1912 to 1921 are included in the third period. The fourth or current period, beginning in 1922, whichis treated in detail in another part of this Chapter. 1s marked 1 United States Bureau of the Census, Wealth, Debt and Taxation, 1913. 2 The net bonded debt was only $1.5 million at the end of 1921. 8 Occasioned by the burning of the state capitol. $3.500.000 of indebtedness was approved for rebuilding the state capitol. STATE AND LOCAL INDEBTEDNESS 47 by certain features that distinguish it from the preceding period. After the close of the World War Missouri gradually became aware of the fact that, if the highway system of the state were to keep pace with developments in other states, an extensive construction program would have to be undertaken at state expense. Accordingly a constitutional amendment authorizing $60 million of state highway indebtedness was submitted to the voters, and it was approved November 2, 1920. The current period in Missouri's debt history might be said to have begun with the approval of this amendment, but since the first bonds were not issued until September, 1922, that date has been taken as marking the actual beginning of the period. The current period differs from the preceding one principally in that recognition is given to the benefits that can be made immediately available through recourse to public borrowing. Although borrowing has been confined mainly to the highway function, the volume of indebtedness that has been incurred for this function alone implies a radical change in the system of financing state activities, as compared with the preceding period. The principal reason for this fundamental change is found in economic development, particularly in the changes occasioned bv the growth of motor vehicle transportation. ConsTiTUTIONAL LIMITATIONS OF STATE AND LOCAL INDEBTEDNESS The present constitution of the State of Missouri was adopted in its original form by a vote of the people October 30, 1875, and went into effect one month later. During the half century and more from 1875 to the present, numerous amendments have been approved, several of which have involved a liberalization of the highly restrictive debt policy of the state as laid down in the fundamental law. The third period in the history of Missouri's indebtedness began not many years before the date on which the constitution was adopted, and that period as a whole was characterized by a successful liquidation of the state’s bonded indebtedness. It is not surprising, therefore, to find that the constitution of 1875 provided that the credit of the state should be care- 48 THE FISCAL PROBLEM IN MISSOURI fully guarded and that indebtedness should be incurred only under certain narrowly prescribed circumstances. Section 44, Article IV, of the Constitution, in its original form,! provided that the General Assembly shall have no power to authorize the contracting of state indebtedness, except in the following cases: First, indebtedness may be incurred in renewal of existing bonds, that is, for refunding purposes, when resources in the sinking fund or otherwise available do not permit their retirement at maturity. This provision by itself cannot result in the incurring of any additional indebtedness. Second, indebtedness not to exceed $250,000 for any one year may be incurred in the event of an unforeseen emergency or casual deficiency of the revenue. Such temporary liability can be created only on recommendation of the Governor and must be paid in not more than two years. Third, the General Assembly is given constitutional authority to submit an act to the electorate providing for the incurring of indebtedness not to exceed $250,000 for any one year. The Act must provide for a tax sufficient to meet interest and principal payments, the latter to extend over a period of not more than thirteen years. A two thirds majority vote is required for ratification. These constitutional restrictions are among the most severe found in state constitutions in the United States. It is obvious that the current practice of financing state developments through borrowing could be introduced only after Section 44 of the constitution had been duly amended. Before considering the amendments of 1920 and later years, other limitations that have been a part of the fundamental law since 1875 should be mentioned. Section 45? of the constitution provides: “The General Assembly shall have no power to give or to lend, or to authorize the giving or lending of the credit of the State in aid of or to any person, association or corporation whether municipal or other, or to pledge the credit of the State in any manner whatsoever, for the payment of liabilities, present or prospective, of any individual, association of individuals, municipal or other corporation whatsoever.” The origin of this section is closely linked with the period in Missouri’s 1 As approved October 30, 1875. 2 Article IV, STATE AND LOCAL INDEBTEDNESS 49 debt history that ended a short time prior to the adoption of the constitution of 1875. During that period the credit of the state had been loaned to private corporations, and not without good reason. After the Civil War, however, the industries of the state were in a disorganized condition, and the indebtedness of the state seemed relatively much larger than it did in the more favorable pre-war days. Since this indebtedness had been incurred in aiding private corporations, those who drew up the Constitutions of 1865! and 1875, recognizing the changed sentiment toward indebtedness, decided to include such a provision. Section 45 has been amended only once. In November, 1900, the electorate authorized the General Assembly to appropriate an amount of not more than one million dollars from funds? in the state sinking fund for the exhibition of Missouri’s resources, products, and industries at the Louisiana Purchase Centennial in St. Louis. The last limitation that can be construed as affecting the indebtedness of the state is found in Section 46,® which provides that “the General Assembly shall have no power to make any grant, or to authorize the making of any grant of public money or thing of value to any individual, association of individuals, municipal or other corporation whatsoever.” An added proviso prohibits this section from being construed in such a way as to prevent the grant of aid in case of a public calamity. While this section does not specifically refer to indebtedness, it represents an extension of the theory of limitation followed in Section 45, and it is included here primarily for this reason. Amendments Authorizing Additional State Indebtedness With the exception of the amendment to Section 45, there were no amendments to the debt limitation sections of the constitution of 1875 before 1920. In that year two amendments to Section 44 were approved by the electorate. The first amendment provided for the issuance of state bonds in t The section quoted from the Constitution of 1875 is Section 13, Article XI, of the Constitution of 1865, modified to some extent. 2 Proceeds of tax authorized by Section 14, Article X, of the Constitution, 3 Article IV. 50 THE FISCAL PROBLEM IN MISSOURI an amount not to exceed $1 million, to create a soldiers’ settlement fund which was to be used in co-operation with federal agencies in providing employment and rural homes for soldiers, sailors, marines, and others who served with the armed forces of the United States in the several wars in which it had been engaged.! Part two of this amendment provided for the levying of an annual tax of one cent per $100 of assessed valuation for the purpose of meeting interest and sinking fund payments on the indebtedness created. The second amendment? provided for the issuance of highway bonds not to exceed $60 million. With the approval of this bond issue the fundamental law of the state in relation to indebtedness can be said to have undergone a very radical change. The inclusion of Section 44a as a part of the constitution represented a departure of most significant implications, for no longer were the activities of the state to be financed primarily on a pay-as-you-go basis. The adoption of this amendment was conclusive eyidence that the fundamental law of the state, as originally established in 1875, no longer fitted the conditions under which the state was operating. As is frequently the case, when the constitutional provisions did not harmonize with the requirements of changed conditions the constitution was amended. Section 44a was revised by a vote of the electorate November 6, 1928. The revision permitted the issuance of an additional $75 million of highway bonds. The approval of additional bonds in a larger amount than had been approved eight years before gives ample evidence that a majority of the electorate was satisfied with the change that had been made in the constitution. The 1928 revision of this section was tested in the courts, and its validity was upheld by the Supreme Court of Missouri, August 19, 1929.5 Other amendments of Section 44 involved the authoriza-1 For complete statement of this amendment, see subsection 4, Section 44, Article IV, of the constitution of Missouri, published by the Secretary of State in 1921. The bonds authorized by this amendment were not issued. 2 Section 44a, Article IV, Constitution of Missouri, 1921 edition. 8 Friendly suit brought by the chief counsel of the State Highway Commission and others against Mr. L. D. Thompson, State Auditor, who for the sake of the argument refused to register the bonds. STATE AND LOCAL INDEBTEDNESS 51 tion of bonds, the proceeds of which were used to pay a bonus to all bona fide residents of Missouri who served honorably in the military or naval forces of the United States at any time between April 6, 1917, and November 11, 1918. The first amendment authorized the issuance of $15 million in bonds, and was approved by the voters August 2, 1921. It was later found that the proceeds of this issue were not sufficient to compensate all of those. entitled to the soldiers’ bonus, and accordingly Section 44 was again amended in order that the provisions of the soldiers’ bonus legislation could be carried out in full. The additional amount needed was estimated as approximately $4.6 million, and the approval of bonds in that amount was given by the electorate February 26, 1924, Constitutional Limitations of Local Indebtedness The constitutional limitations of the indebtedness that local governments may incur, while not numerous, nevertheless effectively limit the governmental units concerned. There are no constitutional limitations concerning the actual amounts of indebtedness that may be incurred, as the limitations are stated in percentages of assessed valuation. While this distinction may not appear to be significant, it has real importance, particularly when the assessed valuation is considerably less than the actual value.! The assessed valuation: basis makes it possible for a municipality? to increase its indebtedness by raising its assessment ratio, without coming into conflict with the constitutional limitations. The General Assembly of Missouri has no power to authorize any municipality, present or future, to lend its credit or grant public money or thing of value in aid of or to any individual, association, or corporation, or to become a stockholder in such corporation, association, or company.® This section of the constitution has been modified several times. While the modifying provisions do not refer specifically to the lending of credit or the creation of indebtedness, they 10r the legally specified percentage of true value in those cases where less than full or actual value is required. 2 “Municipality,” except when otherwise indicated, will be used in the remainder of this section as applying to all local governments. 3 Article IV. Section 47. 52 THE FISCAL PROBLEM IN MISSOURI deserve mention as illustrating the general theory of limitations applicable in Missouri. An exception is made to the rule denying aid to individuals in the case of pensions to crippled and disabled firemen and payments for the relief of the widows and minor children of deceased firemen.! A similar exception is made in the case of the deserving blind.2 A third proviso® authorizes the levying of an annual state tax of not less than one half cent or more than three cents per $100 of assessed valuation for the purpose of establishing a pension fund for the deserving blind. Another section? of the constitution provides that “no county, township, city or other municipality shall hereafter become a subscriber to the capital stock of any railroad or other corporation or association, or make appropriation or donation, or loan its credit to or in aid of such corporation or association, or to or in aid of any college or institution of learning or other institution, whether created for or to be controlled by the State or others.” A proviso added to this section states that nothing contained in the constitution shall affect the right of any municipality to make such subscription, if authorized under existing laws by a vote of the people of such municipality prior to the adoption of the constitution. Neither is this section to be construed so as to prevent the issue of renewal bonds or the use of other means prescribed by law for the liquidation or payment of such subscription or of any existing indebtedness. The most important constitutional limitations of the indebtedness of municipalities’ are found in Article X, Sections 12 and 12a. Section 12° consists of several general restrictions and a number of provisos, which either authorize additional indebtedness in certain circumstances or prescribe further conditions that must be met. The general restrictions are as follows: 1 Proviso to Article IV, Section 47, adopted in 1892. 2 Proviso to Article IV, Section 47, adopted November 7, 1916. 3 Adopted November 2, 1920. 4 Article IX, Section 6. s City, county, town, township, school district, or other political corporation or subdivision. ¢ This section in its present form is an amendment adopted Nov. 2, 1920, Section 12 in its previous form having been repealed at that time. STATE AND LOCAL INDEBTEDNESS 53 l. No municipality is permitted to become indebted in any one year to an amount exceeding the income and revenue provided for that year without. the consent of two thirds of the voters voting on such a proposition. 2. In cases requiring the assent of the electorate, the indebtedness incurred, including existing indebtedness, must not exceed 5%, of the value of the taxable property’ in the jurisdiction concerned, except that the limit 1s placed at 109, in the case of cities with a population of 75,000 or more. The provisos referred to above may be summarized as follows: 1. With the assent of two thirds of the voters voting, any county may become indebted to a larger amount for the erection of a courthouse or jail or for the construction and maintenance of improved roads and bridges. 2. Any municipality incurring indebtedness that requires the assent of the voters is required to provide for the collection of a tax sufficient for interest and redemption purposes. The indebtedness must be retired within twenty years from the date of contraction. 3. St. Louis City is given authority to issue bonds maturing within thirty years in the amount of $5 million and bearing interest at a rate not to exceed 49, the proceeds to be paid to the corporation organized for the celebration of the Louisiana Purchase Centennial in said city, to be used by the corporation for that celebration, holding a world’s fair or exposition in the city. No bonds were to be issued under this provision unless a majority of the voters in St. Louis voting on this amendment approved it. 4. Another provision permits St. Louis City to exclude certain bonds assumed and outstanding prior to its separation from St. Louis County and bonds issued for the construction of waterworks, to be serviced from the revenues of the waterworks, in computing its existing bonded indebtedness under the 109, limitation. 5. Cities having or attaining a population of 75,000 or more are authorized to issue public utility bonds for the purpose of acquiring or constructing certain utilities prop-1 Determined by the assessment next before the last assessment for state and county purposes. 54 THE FISCAL PROBLEM IN MISSOURI erty. Such bonds are limited to 209% of the value of the taxable property in the city, and the principal may not constitute an obligation enforcible out of the funds raised by taxation. However, there is nothing to prevent the issue of city bonds other than public utility bonds for the purpose of obtaining such public utilities, provided the 10%, and other requirements are met. Although it is provided that the principal and interest on public utility bonds shall be paid out of the earnings or the sale of the utilities, a city may provide by ordinance for the payment of the interest or principal falling due in any year out of the revenue raised by means of general taxation. Section 12a of Article X provides that, by a two thirds referendum vote, cities having a population of not more than 30,000 inhabitants may become indebted to an amount not exceeding an additional 10%, of the taxable valuation for the purpose of purchasing or constructing certain utility plants, to be owned exclusively by the city. The usual provision concerning arrangement for the necessary receipts from taxation for debt services is included. Bonds issued under this section must also be retired within twenty years. Section 13 of Article X provides that “private property shall not be taken or sold for the payment of the corporate debt of a. municipal corporation.” This section, while not significant from the standpoint of debt limitation, is important in that clear recognition is given to the fact that indebtedness of a governmental entity is dependent on the taxing power for interest and principal payments and is not to be construed in any circumstances as a direct obligation of property owners within the debt-incurring jurisdiction. Two sections® of Article 14, which were the result of amendments approved in November, 1924, refer specifically to the indebtedness of Kansas City. These amendments gave Kansas City the power to issue serial bonds for public improvements and to assume the cost of several sewer projects and to refund the special assessments that had been made or might later be made. 1Sections 14 and 15. STATE AND LOCAL INDEBTEDNESS 55 StaTuTOoRY Provisions CONCERNING STATE AND Local INDEBTEDNESS In the preceding section it was shown that the constitutional restrictions on state indebtedness are of such a nature that the government of the state can incur indebtedness of any considerable amount only as authorized by constitutional amendments. It follows, then, that the statutory provisions can only supplement the constitutional provisions with respect to certain details of bond issues approved by a referendum vote. The legislation that is approved subsequent to the favorable decision of the voters is in the nature of enabling statutes. That is, the legislature passes certain statutes that clearly set forth the maximum rate of interest, the manner in which the bonds shall be issued, the methods by which funds for meeting interest and principal payments shall be raised, and such other provisions as are deemed necessary. All of the statutes thus enacted must, of course, be in harmony with the constitutional provisions, especially with the amendment or amendments as approved. Detailed examination of the many provisions of the statutes relating to state indebtedness does not come within the scope of this study. The statutes concerning local indebtedness are of the same general nature as those relating to state indebtedness. The reason for this is found in the fact that all general restrictions are a part of the fundamental law, and the legislature accordingly can only enact such laws as will be within the limits established by the constitution. The constitutional restrictions have been considered, and it remains only to indicate the nature of the statutes relating to the subject. Special road districts are given authority to incur indebtedness up to 5% of the assessed valuation® of the property in the district. The bonds must bear interest at a rate not to exceed 6%, and their maximum maturity mav not exceed 20 years. Bonds issued by any local government, with one exception, may bear interest at a rate not to exceed 6%, and must be en Laws, 1923, p. 345. The previous limit was 10%. R.S. 1919, Section 10747. 56 THE FISCAL PROBLEM IN MISSOURI sold at not less than 959, of par! The only exception is that bonds issued by school districts in cities having a population of 75,000 to 500,000 must be sold at a price to yield net proceeds? equal to 90%, of par. The purpose of that part of the statute which refers to the sales price of the bonds is to give the interest rate restriction a degree of effectiveness. A restriction of the coupon rate of interest would be meaningless if it were possible to dispose of bonds at a very large discount. Certain local governments in Missouri are given specific authority to issue tax anticipation notes. For example, counties and cities having a population of 200,000 to 600,000 are permitted to issue such notes in an amount not to exceed in any one month 109, of the estimated revenue for the year. The maximum issues must not exceed 909% of the estimated revenue of a county and 30%, of the estimated revenue of a city, and the notes must be payable in one year or less. The indebtedness of drainage districts is limited? to 909%, of their revenue as authorized by statute, and such districts are given specific authority® to issue refunding notes and bonds. Indebtedness of a somewhat unusual nature may be incurred by special road districts. According to a law® enacted in 1921, such a district may issue warrants in payment of its expenses and obligations. They do not bear interest until after they have been presented for payment and payment has been refused because of lack of funds. If funds are available when they are presented, they are retired at par. However, if no funds are available the warrants bear interest at 6% from the date of presentation until such time as funds are available.” 1Session Laws, 1921, p. 170, as amended by Session Laws, first extra session, 1921, pp. 38-39. % Gross receipts less expenses and commissions. 3 Session Laws, 1925, p. 169. A similar statute authorizes counties of 70,000 to 90,000 to issue tax anticipation notes. The provisions concerning amounts that may be issued are slightly different in the latter. ¢R. 8. 1919, Section 4418. 8 Session Laws, 1927, p. 177. 8 Session Laws, first extra session, 1921, pp. 170-171. 7 The foregoing examples are intended to indicate the scope of the statutory provisions concerning local indebtedness. It is not assumed that the examples given STATE AND LOCAL INDEBTEDNESS 57 Bonps Issuep By Missourl STATE aND Locar GovERN-MENTS Table 16 shows the amount of bonds issued by the state government and the local governments from 1915 to 1929. As public borrowing prior to 1922 was confined almost exclusively to the local governments, the period covered may be divided into two parts, the year 1921 marking the close of the first period. In only one year prior to 1922 did bonds issued by counties show a larger aggregate than those issued by cities, towns, villages, and other minor divisions, exclusive of school districts. In 1921 county bonds issued exceeded those of the latter group of local governments, but the margin was very small. In all other years of the earlier period except 1916 the bonds issued by cities, towns, villages, and other minor units exceeded the bonds issued by both county and school district by a considerable margin. School district bonds constituted the largest percentage of the total in 1916. The total for bonds issued annually did not exceed $10 million in any year before 1921, and for the seven-year period ended in 1921 the annual average was less than $8 million. During a considerable part of this period, construction by local governments was affected by war-time conditions. This factor is reflected in the smaller totals for 1916, 1917, and 1918, as compared with the other years of the period. The period beginning with 1922 was marked by state borrowing on a scale unprecedented in the history of Missouri. As previously stated, the fourth or current period in the history of Missouri's state debt began about 1922, and this period is marked by a radical change in debt policy. It appears from Table 16 that during the years 1922 to 1929, inclusive, the stateissued bondsin the amount of $86.1 million. The largest amount issued in any one year was $25 million, in 1922. In that year $15 million of soldiers’ bonus bonds helped to swell the total, with the result that state bonds issued amounted to more than 659%, of the state and local total. In no other year did state bonds represent as much afford a complete picture of statutory limitations. To treat the development and present status of the laws relating to the subject in a detailed manner would require a volume in 1tself. TABLE 16: BonD Issues or PuBLic AUTHORITIES IN Missouri, 1915-1929 Source: The Commercial and Financial Chronicle, State and Municipal Compendium series Computed by National Industrial Conference Board Y ear .014 1917 1918 1919 920 921 1922 1923 924 1925 1926 1927 1928 “N10 State $25,000,000 5,000,000 13,600,000 15,000,000 15,000,000 5,000,000 7.500.000 Counties $627,798 666,500 ,760,000 1,265,000 2,809,500 3,891,494 4,908,602 £203,125 12227,000 524,403 582,000 575.000 414,000 2,648,000 3160 NOD School Districts $2,225,750 2,310,400 940,200 78.700 2,434,000 1,349,200 1,918,750 2,257,600 3,455,500 5,010,000 5,561,000 4,755,500 2,698,000 2,306,400 L609 50° Cities, Towns Villages, and Special Civil Thuisione $5,910,321 2,244,000 2,646,800 3,977,155 4,042,312 4,116,500 4.834.560 6,609,131 9,551,242 21,365,500 19,010,013 12,670,900 6,375,355 1,594,000 4 517 000 Total $8,763,869 5.220,900 5.347,000 5,320,855 9.285.812 9,357,194 11,661,912 38,069,856 19,233,742 10,499,903 41,153,013 33,001,400 24,487,355 (6,548,400 30.806.500 State 65.7 26,0 33.6 36.5 45.5 20.4 ya % Percentage Distribution School Districts Counties Cities, Towns, Villages, etc. L 12.3 32.9 23.8 20.3 «1.6 42.1 11.0 A4 VR 4 17.¢ L5 26.2 14.4 16.5 £9 2.0 "4 “9 4 ) ) ae 405 747 3.8 2A 2.7 46.2 38.4 66.9 70.1 TAA | Le | 1C. 10 7 | STATE AND LOCAL INDEBTEDNESS 59 as 509 of the state and local total, although in 1926 they amounted to a larger percentage of the total than did those of any one of the three groups of local governments. The total annual bond issues of state and local governments are subject to considerable variation. State bonds have not been issued in uniform amounts, and the variation in local bond issues is very marked. Market conditions probably account for a part of the variation. In general, however, the relation between bonds issued and market factors is not particularly close, for the reason that governmental needs cannot always be adjusted to obtain the maximum advantage from favorable market conditions. While the total for bonds issued in any year or over a period of years is significant, the purposes of issue are of even greater significance. Accordingly the functional distribution of net state and local bond issues! for the years 1915 to 1929 is shown in Table 17. Reference to this table indicates that for the entire period roads, streets, and bridges accounted for the largest proportion of state and local issues. It is not to be inferred that the same was true for each year of the period, although this was the case in all except four years. The proportion of the total attributable to roads, streets, and bridges did not show an unusual change because of the issue of state bonds for highway purposes in 1922 and later years. Since 1921 the proportion of local bonds issued for this purpose has been relatively lower than in 1921 and preceding years, with the result that when state bonds are included the relationship between bonds for roads, streets, and bridges and total bonds did not change appreciably. The year 1928 forms an exception to the last statement. In that year no state highway bonds were issued, and consequently the amount of $2.2 million represents only local bonds issued for highway purposes. Other important functions for which bonds were issued during this period were sewers and drainage, schools and school buildings, and general buildings. The issues for these purposes in each case showed considerable variation. The issues for schools and school purposes comprised a considerable proportion of the total in all but two years, while those 1 Total of new bonds issued less those for refunding. 50 THE FISCAL PROBLEM IN MISSOURI TasLe 17: Funcrionar CrassiFicaTioNn oF BonD ISSUES Source: The Commercial and Financial Chronicle, Computed by National {ear Water Roads, Streets, nd Bridoes Sewers and Drainage Schools and School Buildings General Buildings nd Fire i Parks and Museums Electric Light and (sas i915 1916 1917 1918 1919 1920 it M3 “oy $239,000 962.500, 174000 ; 1,595,501; 9.000 | 221,500 124000 290,000 789,000 1.877.465 745000 244.000 308/000 1,241,000 350,000 3,645,000 1,289,500 6,382,000 799,000 10,447,000 35 5048500 15,540,000 6 2.922000 15,266,000 227 3510000) 7494000 1928 | "348,000 | 2,155,000 1999 1235900" 10.159.000 $703,208 394,500 765,000 £659,000 2,334,000 642,500 778,602 363,000 1,228,500 494,000 8,186,000 841,500 852,000 282,000 267000 $2,225,75( 1,310,400 940,200 128,700 1,434,000 1 349.200 918,750 257.600 992,000 177.500 856,000 +/880,500 848,000 ° "616,400 727 500 $532,500 3395,621 $69,200 139,000 435,000 : 105,000 252,000 46.000 5,000 90,000 .. 47,000 189.000 64,847 | 46,000 37.500 10,000 70,000 90,0" .. ‘000 571,000 347,131 £2,000 5,547,000 309,801 24,500 3250000 .. 22,000 4264000 16,513 45000 TA77.500 3,500 00,000 3,930,500 10,000 150,000 1,042,000 .. 80,000 2964000 | 250,000 20.000 nn mtn fry 1915 1016 "17 “18 19 1 8. 9 1 3 a nn 2% 2 4.4 70 8.4 |! 1.0 0.7 0.1 4 1 1 ao “1 27, 2973 aA. 0.9 16 2 D ® ®) ( — ! TR < * Funding and improvement combined. 2 Does not inclt °° rzfundin. boa for sewers and drainage declined both relatively and absoutely in the later years and those for general buildings increased greatly. A comparison of the state figures in Table 16 with the functional data in Table 17 can readily be made, if it is kept in mind that the state bonds shown for 1922 and later years were issued for only two purposes, highways and soldiers’ bonus. Of the $25 million issued in 1922, $15 million were for the payment of the soldiers’ bonus. In 1924 an additional issue of $3.6 million was floated for this purpose. The re-STATE AND LOCAL INDEBTEDNESS oF PusLic AuTHoRrITIES IN Missouri, 1915-1929 State and Municipal Compendium Series Industrial Conference Board 5] . Ve Soldiers’ Funding | ment Bonus Harbor Flood and Pre- Watervention ! gone Rapid Transit, Ferries, Cnnle 1 Ls Trrigation Miscellaneous Total? $85,000! 7,500! 11.300! 1,550,00C/°° 763,869 15,000 *,175,900 300,000 1,550,000 982,155) 5.320.855 90,000] 9,285,812 115,000] 9,357,194 700,000{11,301,912 454,125(37,569,856 47,500(19,187.742 163,403/40,499,903 30,000141,056,013 [32,996,400 35,000[24,463,355 25,000(16,548,400 30,806,500 61,500] .. 143,094 . . 47.560. J $85,000 . $15,000,000(450,000 27,500 | $60,441 .. [279,000 150,000 © .. 3,600,000] .. . » [270,000 855400 | 449,000 .. {200,000 588.355 (4,875,500 .. [1700000 100,000 | 400,000 1 500,000$3,000.0% Distribitinn I 0.1 0.3 0.7 12.2 0.4 . .. Ne .. 39.4 0.1 0.3 .. 0.4 - 8.9 2.6 1.4 | i, 2.4 19.9 . 0.3 12 3 Less than one tenth of one per cent. 03 6.5 1€ 5 ~ 0 100.0 100.0 100.0 100.0 100.0 ~N.0 20.0 +J0.0 100.0 100.0 100.0 100.0 100.0 Inn nr 1.2 0.2 0.6 0.1 0.1 0.2 mainder for that year and the state issues in all other years after 1922 were exclusively for highway purposes. StaTE INDEBTEDNESS The amount of bonds issued in any year or over a period of years gives no indication of the net bonded debt' or the total debt of the governmental division in question. In fact, it is possible for net bonded debt to decrease in a year in 1 Net bonded debt is bonded debt outstanding less sinking fund assets. 62 THE FISCAL PROBLEM IN MISSOURI which a large amount of bonds are issued. This would be the case if retirements exceeded new issues or if sinking fund assets were increased by an amount larger than new issues, or if the two factors in combination were more than sufficient to counterbalance new issues. It is important to remember that the change in net bonded debt from year to year involves consideration of new issues, retirements, and change in sinking fund assets. Net Bonded Debt of Missouri and Other States The net bonded debt of Missouri at the end of 1928 amounted to $64.4 million, as is shown in Table 18. Between the close of the fiscal year 1927 and the close of the fiscal year 1928 there was a decline of more than $1 million. No state bond issues were floated in 1928, and the decline indicated is therefore directly attributable to retirements and change in sinking fund assets. The increase in state net bonded debt was particularly marked between 1922 and the end of 1926. In 1921 the net bonded debt of the state was only $1.5 million. The $25 million of new issues floated in 1922 resulted in a tremendous increase in net bonded debt, which at the close of the year amounted to $25.9 million.! In 1923 there was some increase, but the principal increases occurred in 1924, 1925, and 1926. The net bonded debt of Missouri is also shown on a per capita basis in Table 18. From $0.05 in 1913, the per capita net bonded debt of the state increased to $7.96 in 1923, $14.57 in 1925, and $18.40 in 1927. At the end of 1928 the per capita net bonded debt was $17.98. In Chart 2 the per capita net bonded debt is graphically presented for the years 1913, 1918, and 1923 to 1928. In interpreting fiscal statistics it is important to compare the data for other similar governmental divisions in order that the relative position of the government under consideration may be determined. For this reason data for the net bonded debt of 11 other states are included in Table 18. This table shows that at the end of the fiscal year 1928 the net bonded debt of Missouri was exceeded by t Computed from data in Financial Statistics of States, 1922, published by the United States Bureau of the Census. TasLE 18: Net Bonpep Dest oF Missourt AND OTHER STATES, 1913, 1918, anp 1923-1928 Source: United States Bureau of the Census, Wealth, Debt and Taxation, 1913, Financial Statistics of States, 1918 and later years Computed by National Industrial Conference Board 1918 1923 ! 1924 ! 1925 State 1913 Missouri. ......... hy Minnesota. ............. 0): WO Nebraska............... RaNBAB. vv s viv + 5 vvmmrwv es dklahoma............... Arkansas........ cee llinois. ..........oovee] [ndiana........... 3 WI n ss anssrsnmmnnssss Wisconsin. ........... Kentucky. . - 1928 $64,441,630 8,608,569 15,183,990 25,426,651 2,706,917 80,557,125 147,403,829 2,062,500 8,981,980 & $180,691 900.000 $2,384,000 1,391,000 130,000 $27 695,773 17,854,300 11,715,131 $38,841,390 16,515,305 19.962.765 $51,277,872 14,717,257 19.061.079 $63,607,263 12.227.568 18.213.896 $65,559,625 11,715,328 16.701.085 243,121 3,055,000 236,066 17.500 655,137 ® 5,990,359 1,466,027 242,500 181,129 ® 66.058 3,217,714 2,499,002 23,158,150 1,205,615 23,684,445 2,063,700 25.207 26,924,513 3,210,112 2,484,740 100,327,691 1,360,615 20,585,017 1,963,700 (4) 26,704,544 3,395,800 2,443,275 125,839,135 1,334,615 18,751,440 1,863,700 (5) 25,788,898 3,336,826 3.116,158 136,818,598 1,689,000 15,325,457 1,763,700 (5) 24,836,544 3,074,803 3,017,087 38,344,565 1,649,500 13,643,180 1,663,700 227526 Per Tanita Missouri. . . viinnesota. . - PP , 10): WO Nebraska. . RP Kansas. ................ Oklahoma. . . Cee Arkansas... ....... . (linots. ..... su Indiana. .......coveunen. DhiO. oi ieee Wisconsin. ......covvee-Lentuckv. Ul J.a2 0.60 3.05 3.07 0.85 0.04 0.06 , ) 0.03 Sinking fund assets $156,723 in excess of bonded debt. Sinking fund assets $53,570 in excess of bonded debt. } Sinking fund assets $3,913 in excess of bonded debt. i Sinking fund assets $178,930 in excess of bonded debt. 0.14 1.74 0.76 ¢ Oem lv. 0 7.32 4,84 1.51 1.40 3.40 0.40 3.94 07h 6.72 89 5.95 7°83 . 5 4.91 7.46 £0 1.57 5.87 A - 3.41 6.19 4.86 4.65 14.06 1.48 1.54 1.49 1.39 1.36 1.72 4.49 17.89 19.16 0.45 043 0.54 a7 | 2.03 | 2.44 71 0.67 0.63 3.46 13.70 1.35 1.17 1.66 43.98 19.08 20.02 0.53 0.65 2.14 1.39 0.59 .. Nn Nn oN 5 Sinking fund assets $23,941 in excess of bonded debt. } Sinking fund assets $175,219 in excess of bonded debt. 7 Sinking fund assets $144,208 in excess of bonded debt. 3 Three tenths of one cent. 64 THE FISCAL PROBLEM IN MISSOURI only 2 states of the group for which data are given. The net bonded debt of Illinois amounted to $147.4 million, and that of Arkansas was $80.6 million. Of the remaining 9 states, Kansas had a net bonded debt of $25.4 million; 5 other states had net bonded debts ranging from $2 million to a little more than $15 million; and 3 states! had no net bonded debt whatever. At the end of the fiscal year 1927 the net bonded debt of Missouri was exceeded bv only 1 CuarT 2: Per Carita Net Bonpep DEBT oF Missouri, 1913, 1918, anp 1923-1928 913 $0.05 [G18 Q.70 1023 7.96 1924 1.10 1928 |4 57 1928 17.96 1927 18.40 1928 17.98 state, Illinois, and at the end of the fiscal year 1923 Missouri’s net bonded debt was larger than that of any other state in the group. It is evident, then, that between 1923 and the latter part of the period the net bonded debt of both Illinois and Arkansas increased more rapidly than that of Missouri. The increases in these 2 states, furthermore, were much more abrupt than in the case of Missouri. The per capita figures in Table 18 provide a better basis 1 Nebraska, Wisconsin, and Kentucky. STATE AND LOCAL INDEBTEDNESS 65 for interpretation than the absolute amounts. Missouri's per capita net bonded debt in 1923 was larger than that of any other state in the group. In all later years, Illinois had a higher per capita net bonded debt than Missouri. For 1924 and 1925 the per capita debt of Kansas was higher than that of Missouri, and for 1928 Arkansas also had a higher net bonded debt on a per capita basis than Missouri. For the period 1923 through 1928, the per capita net bonded debt of Missouri was more nearly comparable with that for {linois than with that for any other state in the group. The change in the debt policy of a number of states becomes apparent when the per capita data for 1913 and 1928 are compared. In 1913 only Oklahoma had per capita net bonded debt in excess of $1.00, while in 1928 four states had per capita net bonded debt of more than $13.00. TaBLE 19: Ratio or State NET BoNDED DEBT TO WEALTH, Missourt AND OTHER STATES, 1928 Computed by National Industrial Conference Board State Missouri. . . Co Minnesota. .... SRA RE iowa. ..... Caen. Nebraska. . .. eee Kansas. .. .. Oklahoma... ... Sa Arkansas. . . caw (lincis. ..oovveeeene nnn. Indiana. .....cooeveeeeennnnnn Ohio... viverra oa Wisconsin. ... .. Kentucky. Net Bonded Debt 19281 564,441,630 8,608,569 15183.990 25,426,651 2,706,917 80,557,125 47,403,829 2,062,500 8.981.980 Estimated Wealth—19282 in Million Dollars 511.261 81 352 1800 771 01 > 866 ‘4.276 169 21 = Ratio: Net Bonded Debt to Estimated Wealth Per Cent 0.57 0.09 0.13 0.38 0.06 2.81 0.61 0.02 0.04 t Data from Table 18. . Data from Conference Board Bulletin No. 38, February 25, 1930. Probably the best basis for interpretation of debt statistics is to consider the ratio of net bonded debt to wealth. In Table 19 the net bonded debt of the several state governments is considered in relation to their wealth as estimated for the year 1928. In spite of the large increase in indebtedness, the ratio for Missouri is only 0.57%. Only one state in the group, Arkansas, shows a ratio of net bonded debt 66 THE FISCAL PROBLEM IN MISSOURI to wealth of more than 19,. Of the remaining states, only Illinois had a higher ratio than Missouri. Although the debt of Missouri ranks third on this basis, the ratio is actually very small, and Missouri has provided for the servicing of its debt obligations in a very capable manner. More important than the amount of indebtedness or its relation to other factors, such as population and wealth, is the establishment of a sound financial plan for meeting interest and principal payments as they come due. The State of Missouri has made careful provision for such a plan and has recognized the fact that only in that manner can its credit standing be maintained. Floating and Current Debt of Missouri and Other States At the end of 1928 Missouri had outstanding current debt obligations amounting to $318,596 and floating debt obligations of almost $4.4 million. The latter amount consists of school and seminary certificates and does not represent an outstanding debt, as the certificates are held in trust by the State Treasurer for the public school fund and the seminary fund. This indebtedness is of a permanent nature, the total having remained unchanged since 1902. Whenever one of the certificates matures, it is cancelled by the Board of Education, and a new certificate for like amount bearing the same rate of interest is executed by the Governor.! The required renewal period is twenty years. Since Missouri has had no floating debt obligations outstanding in recent years, other than the semi-permanent school and seminary certificates of indebtedness, which have remained unchanged in amount, a consideration of the shortterm indebtedness of the state involves only the current debt. The current debt as of the close of the year 1924 amounted to $460,783, which was larger than that for any other year, as may be seen in Table 20. At the end of 1923 current debt amounted to only $2,120, and, as stated above, it was only $318,596 at the end of 1928. For purposes of comparison the floating debt and the current debt of eleven other states are shown in Table 20. Since in a number of states the floating debt, or part of it, 1R. 8, 1919, Sections 11594 and 11595, TabLe 20: Froating AND CurreNT! DEBT IN Missourt aNp OTHER STATES, 1918 anp 1923-1928 Source: United States Bureau of the Census, Financial Statistics of States series 5 J State Missouri: floating. . current. . Minnesota: floating. . current. . floating. current. loating surrent. loating wurrent, loating 'urrent. loating wurrent. loating. current. . Joating. current. Yoating. current, , . Joating. . current. floating surrent Kansas: Oklahoma: 1918 $4,398,839 105,070 477,673 307,656 112,320 275,677 565.023 1,334,392 1,814,420 335.031 230,274 3,400,084 431,949 1,951,000 1,520,627 5552.383 1923 $4,398,839 2,120 2,566,823 2,969,800 461,597 170.961 1.038.573 105,728 1,597,968 1,629,577 340,000 026.952 5419,150 992.070 2,480,627 6.134.176 1924 $4,398,839 460,783 2,184,464 1,667,160 501,897 299.962 1.687.637 124,841 1,597,968 £212,398 340,000 1,825,357 5 425,428 1.902.040 2,480,627 9°169.061 1925 $4,398,839 294172 1,453,063 1,523,027 842,937 750.629 ) 937 165 2,783,555 (597.968 2,802,482 340,000 457,645 5,435,312 782.787 2,480,627 11.514.878 1926 $4,398,839 161,349 2,029,557 1,449,692 387,243 331,752 1,891,844 2,563,775 1,814,420 1.714.568 631,581 5,435,312 2.030.233 2,480,627 6.920.878 1927 $4,398,839 330.441 5,073,606 3,494,000 1,856,464 2,921,532 112,478 671.192 529,574 1,814,420 2.073.940 622,530 5,484,655 1174582 2,480,627 6.173.054 1928 $4,398,839 318.596 1,436,365 3,664,000 1213,293 842,719 458,836 1,291,168 1,918,064 1,814,420 1.320.441 579,487 5,643,955 1,674,245 863.700 2,480,627 8.808.789 L Warrants and revenue bonds and notes. 68 THE FISCAL PROBLEM IN MISSOURI is of a nature similar to that of Missouri and does not represent outstanding indebtedness that must be liquidated on any given date or dates, the statistics of floating debt are not entirely comparable. For this reason the discussion will be confined to the current debt. At the end of the fiscal year 1928, only one state in the group, Wisconsin, had a more favorable current debt position than Missouri. Wisconsin had no current debt whatever at the end of any of the years included in the table. Of the remaining states, Kansas had the smallest current debt at the end of the fiscal year 1928, and Kentucky, the highest. The latter state in recent years has had a larger volume of current debt than any other state in the group, but its current debt has not constituted a problem of any significance for the reason that its net bonded debt has either been negligible in amount or a minus quantity.t FuncrioNAL DISTRIBUTION OF THE STATE DEBT It has been pointed out that net bonded debt differs from total bonded debt outstanding by the amount of the sinking fund assets. So long as a state has any sinking fund assets it is not possible to make a functional distribution on the basis of net bonded debt, for thesinking fund assets represent a fund that under ordinary conditions is regarded as applicable to reducing debt in general and not any particular part of it. Accordingly, when a functional distribution is desired, funded or bonded debt outstanding must be used. Also, since floating debt is ordinarily for an intermediate time period, it should be included. Table 21 shows the funded and floating debt? of Missouri, as of the end of given years, classified according to the purpose for which it was incurred. At the end of 1918 Missouri had outstanding only $2.4 million of bonded debt, which had been incurred for building purposes, and the floating debt consisted of $4.4 million of school and seminary certificates of indebtedness. General government buildings in 1 Kentucky's sinking fund assets in a number of years exceeded the bonded debt obligations outstanding. See footnotes to Table 18, p. 63. 2 The amount shown under “ Combined or Unreported Purposes” is the only item classified as floating debt. Tare 21: Funpep anp Froating DEBT oF THE STATE oF Missouri, CLASSIFIED BY PURPOSE FOR waicH INCURRED, END oF YEaRrs 1918 anp 1923-1928 Source: United States Bureau of the Census, Financial Statistics of States series Computed by National Industrial Conference Board 1918 EE 1925 $2,384,000 $9,000 13,000,000 .. 15,000,000 4,398,839 4,398,839 .. 514,000 6.782,839 | 32,921,839 1¢. $309,000 a ~ . 21,000,000 $35,000,000 $50,000,000 $49,000,000 7.000 194.000 150,000 110,000 18,600,000 18,485,000 18,240,000 16,609,000 4398839 4.398.839 4308.839 4,398,839 +i R15839 | $8,077,830 | 70,053,839 | 72,788,839 ; 70,117,839 Yercentace Distribution Seneral government buildings. . . Highways. ............. 68.7 69.9 Schools, including colleges. ............. 0.2 0.1 Soldiers’ and sailors’ relief and homes. . . .. 45.5 25.1 | 23.7 Combined or unreported purposes!. ..... 13.4 6.0 6.3 Funding and refunding. . . . . 1.6 ] i. .. Total. . } _ 100.0 | 100.0 i 100.0 | 100.0 | 100.0 | 100.0 | 100.0 * The amount shown under this heading is the total indebtedness outstanding on account of school and seminary certificates and may be regarded as floating debt, 2 Less than one tenth of one per cent. Tar 22: Nir Bonpep DEBT oF St. Louis City, Kansas Cry, St. JosEPH, AND SPRINGFIELD, 1913, 1918, anp 1923-1928 Source: United States Bureau of the Census, Financial Statistics of Cities series Computed by National Industrial Conference Board 1913 1912 1922 1904 197 196 $22,450,433 217 487,62 $12,976,209 $20,892,391 i 2,931,592 $24,956,206 8,580,002 | 12,6861 © 15,324,200 | 21,589,198 %7,978,528 | 36,805,489 2,279,075 2,384.1. 2,096,659 2,996,906 2,925,246 3,049,760 201.992 171 047 677 771 614.693 712.735 644.27" City 1 Loti, «cor ven vee ven wen en ree {ansas City. ..eve: + cevevnn-onn Ye. JOUBDH os wiih vas wns vw pws ees springfield... ibid ER BAG ow 1928 $52,387,808 | $39,508,522 | 43430313 | 44,262,638 1698,530 5031455 Vi77%3a 1408067 70 THE FISCAL PROBLEM IN MISSOURI more recent years have ceased to be significant as a debt function. The funded and floating debt of the state at the end of 1928 amounted to $70.1 million, more than 93% of which was incurred for highways and soldiers’ and sailors’ relief and homes. The high percentage of state indebtedness attributable to these two functions is explained by the fact that the constitutional restrictions on indebtedness are severe, and it follows that large amounts of indebtedness could be incurred only for such purposes as were specifically mentioned in constitutional amendments. These amendments, as has been stated, provided for the incurring of indebtedness only for the two functions mentioned. As the bonds issued in 1929 and 1930" have been exclusively for highway purposes, it is probable that considerably more than 709, of Missouri's present bonded and floating debt is attributable to the highway function. Locar NeT BoNDED INDEBTEDNESS The net bonded debt of the local governments is estimated as $153,041,000 for 1928, as compared with $65,278,000 for 1922. Local net bonded indebtedness, therefore, increased more than 130%, during the six-year period. Table 23 shows that the per capita local net bonded debt in 1928 was $42.70, and that the ratio of local net bonded debt to wealth was 1.36%. Because of the manner in which the data used in estimating total local net bonded debt are compiled, it is not possible to present separate net bonded debt figures for counties, cities, school districts, and so on. However, accurate compilations of the indebtedness of all cities over 30,000 are made by the United States Bureau of the Census, and Table 22 shows the net bonded debt of the four cities® in Missouri that are in this class. According to this table, the net bonded indebtedness of the four cities amounted to 1 The bonds issued in these years were part of the $75 million issue approved November 6, 1928. 2 Computed from data published by the United States Bureau of the Census in Public Debt, 1922, and Financial Statistics of Cities, 1922. 3 Including school and other special districts within the cities. STATE AND LOCAL INDEBTEDNESS 71 slightly more than $90 million in 1928, or almost 609, of the total local net bonded indebtedness in the state. In 1923 and later years the net bonded debt of Kansas City exceeded that of St. Louis City. School indebtedness of Kansas City is considerably larger than school indebtedness of St. Louis City, and this fact accounts for the larger total in the case of the former. Comparison of the city data for recent years indicates that the net bonded indebtedness of the four cities has been increasing at a more rapid rate than total local indebtedness; the increase for the five-year period 1923 to 1928 amounted to almost 2009. TaBLe 23: Missourr State AND Local Ner BonpeDp Dest, 1928 Computed by National Industrial Conference Board Tvpe Sate. ......s ocala State and local... . Total Net Bonded Debt in Thousand Dollars Lyf Per Capita 17.98 42.70 60.68 Percentage Distribution 29.6 70.4 100.0 Ratio of Net Bonded Debt to Wealth Per Cent 0.57 1.36 1.93 ComeINeD StaTE AND Locar Net BonDeED DEBT Probably the most significant interpretations of indebtedness are obtained by considering combined state and local net bonded indebtedness in relation to population and wealth. Table 23 shows that the per capita state and local net bonded debt for 1928 amounted to $60.68, and the ratio of state and local net bonded debt to wealth was 1.93%. Both of these figures are considerably lower than comparable figures for the United States as a whole. It appears, therefore, that, although both the state government and the local governments in Missouri have issued a large volume of debt obligations and have increased their indebtedness at a rapid rate, Missouri’s state and local net bonded debt on a per capita or wealth basis is below the average for the United States. Cost or MONEY TO THE STATE oF MISSOURI Any consideration of the cost of borrowed funds must take nto account a number of factors. In the first place, the 72 THE FISCAL PROBLEM IN MISSOURI bonds issued are usually sold either at a premium or at a discount, and only rarely at par. It follows that the true rate of interest will be affected by the amount of the premium or the discount, since in the one case more money is received than will be required for purposes of redemption, and in the other case the redemption payments will exceed the amount of money originally received. A second factor is the nominal or coupon rate of interest and the frequence of interest dates. The annual or semi-annual interest payments are a function of this rate and the par value of the obligations. While these payments are not the sole factor in determining the cost of money, under all ordinary conditions they are the most important factor. A third factor is the maturity date of the bonds, which is particularly important in cases where the bonds were sold at a considerable premium or discount. The premium or the discount depends in turn upon both the coupon rate of interest and the maturity dates. Other factors, such as callable or conversion features, need not be discussed here, as they have no particular application to the problem under consideration. The requisite information being available, it was decided to compute the cost of money or the true rate of interest on the receipts from the $60 million of state highway bonds issued during the years 1922 to 1927. The facts concerning the ten series of bonds comprising this issue are shown in Table 24. The coupon rate of interest for the first three series issued in 1922 and 1923 was 414%,. Series D and E bore a coupon rate of 4%, and the later series a rate of 4249. The coupon rate was changed in accordance with money market conditions and the desired maturity dates, and such changes as were made are not indicative of any change in Missouri’s credit position. That the three earlier series were marketed at a higher coupon rate than any of the later issues may be attributed in large part to the relatively brief period for which they were issued. Five series! amounting to $32.5 million par were sold at a premium, and the total received on account of premium was $482,732.50. The other five series? were sold at a discount, the total discount amounting to $186,691.50. The net L Series A, F, H, I, and J. 2 Series B, C, D, E, and G. STATE AND LOCAL INDEBTEDNESS 73 TaBLe 24: State Roap Bownps Issuep BY Missouri, SepreMBER 1, 1922, To June 1, 1927 Source: Official Manual, State of Missouri, 1929-1930 Maturities Dates T Amounts 9/1/26 "$2,000,000 9/1/27 510,000 Sept. 1, 1922 dar $5,000,000.00 Premium ~~ 32,215.00: Net 5,032,215.00 Par $5,000,000.00 Discount ~~ 22,000.00 Net 4,978,000.00 | Par $5,000,000.00' Discount ~~ 27,543.00 | Net 4,972,457.00 Dec. 1, 1922 414 June 1 Dec. 1 12/1/23 12/1/24 (2/1/25 2,000,000 2,000,000 1.000.000 Nov. 1, 1923 414 May 1 Nov. 1 11/1/28 11/1/29 11/1/36 11/1/31 1171732 1,000,000 1000,000 1000,000 “000.000 1067-70 Sept. 1, 1924 Par $4,000,000.00 Discount 13,175.00 Net 3,686,825.00 Par $6,000,000.00 Discount 110,406.00 Net 5°889,594.00 Par $7,500,000.00 Premium 165,975.00 Vet 7,665,975.00 4 Mar, 1 Sept. 1 9/1/33 nr 2,000,000 2,000,000 Nov. 1, 1924 May 1 Nov. 1 11/1/35 11/1/36 (1/1/37 2,000,000 2,000,000 2.000.000 Oct. 1, 192% 41 April 1 Oct. 1 4/1/33 , 4 4 “5 4 < 300,000 500,000 500,000 500,000 500,000 3,000,000 2.000.000 39 Sept. 1 1925 Par $7,500,000.00 Discount 13,567.50 Net 7,486,432.50 414 Mar. 1 Sept. 1 3/1/39 3,140 3/1/41 1/1/42 1,000,000 3,000,000 3,000,000 00.000 May 1, 1926 Par $7,500,000.00 Premium 81,742.50 Net 7,581,742.50 374 Nov. 1 Mav 1 5/1/33 5. 34 Tg &L 500,000 500,000 500,000 500,000 500,000 2,500,000 1.500.000 Sept. 15 1926 Par $7,500,000.00 Premium ~~ 45,600.00 | Net 7,545,600.00 414 Mar. 1 Sept. 1 ? bl 500,000 3,000,000 3,000,000 1,000,000 2,000,000 3,000,000 3 June 1, 1927 Par $5,000,000.00 Premium 157,200.00 Net 5.157.200.00 417 Dec. 1 june 1 6/1/46 6/1/47 74 THE FISCAL PROBLEM IN MISSOURI premium receipts for the ten series therefore amounted to $296,041. In other words, Missouri received $60,296,041 for the ten series, not counting the accumulated interest from the date borne by the bonds until the date of sale. This indicates that those responsible for determining the coupon rate of interest were successful in appraising the market situation. It was desirable that the bonds should be marketed at a rate that would preclude the possibility of a considerable net discount for the ten series as a unit, and this result was achieved. The maturity dates on the several series were adjusted in such a manner as to correlate with the estimated receipts for redemption purposes. The limitations contained in the constitutional amendment authorizing the indebtedness were, ofe course, observed. Table 24 indicates that the maturity dates for the ten series varied between Dec. 1, 1923, and June 1, 1947, and that the maximum amount maturing on any one date is $3 million, as compared with a minimum of $500,000. It would probably be too much to expect that the entire issue could be redeemed without any refinancing, for this could occur only if the future financial situation had been perfectly appraised by those responsible for the determination of the maturity dates. Nevertheless, it is clear that every attempt was made to minimize the burden of the redemption payments required on any given date. Table 25 has been derived from the information given in Table 24. Since interest on the entire series is payable semiannually, the semi-annual coupon rate and the semi-annual true rate are shown. The semi-annual true rate represents the interest cost for one half year expressed as a percentage of the receipts obtained! from the sale of bonds in a given series and based on the assumption that interest is normally payable semi-annually. In other words, this rate is a function of the semi-annual coupon rate, the net receipts, and the maturity dates. The nominal annual true rate is obtained by multiplying the semi-annual rate by two. The annual effective coupon and true rates are slightly higher than the nominal rates. Itis a convention in actuarial 1 Exclusive of accumulated interest between date of issue and date sold. STATE AND LOCAL INDEBTEDNESS 75 science to compute effective rates of interest on an annual basis, and this convention has been followed in making the computations in Table 25. The annual effective true rate of interest will be used in this section as indicating the cost of money or borrowed funds to the State of Missouri. TasLe 25: ComparisoN oF Coupon AND TRUE RATES oF INTEREST ON STATE Roap Bonps Issuep By Missouri, SepTEMBER 1, 1922, To June 1, 1927 Source: Official Manual, State of Missouri, 1929-1930 Computed by National Industrial Conference Board Series kh» Date Issued sept. 1, 1922 dec. 1, 1922 Nov. 1,1923 jept. 1, 1924 Nov. 1,:924 Jet. 1, 1925 Jept. 1. 1:75 May 1 107% Sept. 1. 7° [une 1,1927 Coupon Rate of Interest Semi-Annual Rate Annual Nominal | Rate Effective Rate 2.25% 2.25 2.25 2.00 7.00 2.125 1357 7 1.50%, 4.50 1.50 7,00 00 25 25 4.5.% 4.55 4.55 4.04 4,04 4.30 4.30 in Il” a FE ve mnd 30 True Rate of Interest Annual Effective Rate Semi Annual Rate 1/29, 2.380 2.297 2.022 2.099 2.006 2,133 2.072 2.101 2.009 5.3449, 4.391% 4.760" | 4.817 4.594 | 4.647 4.044 14.085 4.198 4.242 4012 4.052 $266 4.311 4.144 4.187 4202 4.246 4018 1.058 The cost of money obtained from the sale of the $60 million of highway bonds varied from 4.052%, to 4.817%. The rate of 4.0529, represents the annual cost of the net receipts obtained from the sale of Series F, issued under date of Oct. 1, 1925, and the rate of 4.8179, represents the cost of Series B, issued under date of Dec. 1, 1922. The cost of money for the first three series issued was strongly influenced by the maturity dates, which varied from one to nine years. Indeed, Series B might have been regarded as a form of intermediate financing, since the maximum maturity, which was applicable to only one fifth of the series, was only three years. If the first three series are excluded, it is found that the maximum cost of money for any of the remaining series is only a little more than 4.3%, and that the average! for the seven series is approximately 4.17%, as compared with an average of almost 4.62%, for the first three series. 1 Unweighted average of effective annual rates, Series D to J inclusive. 76 THE FISCAL PROBLEM IN MISSOURI It may be concluded that during the period in question Missouri was able to dispose of its debt obligations under circumstances that resulted in a very moderate cost of money. Market conditions were favorable during most of the period, and the tax exemption feature helped to keep down the cost of money. The most significant factor, however, was the excellent credit position of the state, together with the fact that in floating the highway bonds ample provision was made for the receipts necessary to meet interest and principal payments, which carried an assurance that the high credit standing of the state would be maintained. INTEREST RATES oN LocaL Bownbps It is to be regretted that the cost of money analysis as applied to the receipts from the sale of state bonds cannot be used in the case of bonds issued by Missouri local governments. Such an analysis would unquestionably be most instructive, but the requisite information concerning sales prices and maturities is not available. However, information concerning the coupon rates of interest borne by local bonds issued is accessible, and in lieu of an analysis based on actuarial computations of the cost of money, Table 26 was compiled. This table, while indicative of the cost of money, cannot be used to draw conclusions of so definite a nature as those arrived at in the case of state bonds. If it were assumed that the coupon interest rates on local bonds are adjusted to market conditions so that on the average they will be disposed of at par, the average rates as given would be the approximate cost of money expressed as a percentage of the principal sum, but such an assumption is perhaps too liberal, and for that reason the discussion will be confined to coupon rates as such. The average coupon rate of interest borne by bonds issued by Missouri local governments during the years 1926 to 1929 was 4.35%,. The highest average rate in any year was 4.539, for 1929, and the lowest was 4.189, for 1927. The average rates are influenced by several factors, the most important of which perhaps are bond market conditions and the credit position of the issuing governments. Except in TaBLE 26: Bonps Issuep By Missouri Locar GoverNMENTS, CrLassiFIED AccoRrDING To RATE oF INTEREST, 1926-1929 Source: The Commercial and Financial Chronicle, State and Municipal Compendium series Computed by National Industrial Conference Board ~1 ~3 Year A107 10 43, SMa 549% 39 6% Unknown Total 1926 1927 1928 1929 16,049,500 0,096,000 {nom 2,048,400 5,992,855 say” 3340s. 701,50¢ LEI #3 9.366.000 p18: 165, 22 733.500 34,500 506,500 21,400 461.000 $577,000 13,00 165,000 510,000 63,500 367,500 50,000 $218,000 102,506 10 216,500 12,001,401 19,487,355 16,548,400 3.306.500 OU 100,500 .. 174000 | 30,000 ' 117,500 | 547,00 1926-1929 18,442,500 | 19,967,255 | 33,371,500 1 1,305,500 2.832400 ' 555,000 77,343,655 Percentage Distribution Average Rate? 1926 1927 1928 1929 1926~197 4.35 1 “Unknown” excluded in computing average rate. The average rate is a weighted average of the rates on those bonds the rates of which are definitely known. tI ess than one tenth of one per cent. . 4.34 0.3 418 01 | 431 09 453 78 THE FISCAL PROBLEM IN MISSOURI cases where a large amount of bonds is issued by a local government with a particularly strong or an unusually weak credit position, differences due to the respective credit positions would tend to offset one another, with the result that market conditions would be the most influential factor affecting the average rate. The modal, or most typical, rate for the four-year period was 4149%,. More than 439, of all local bonds issued bore that coupon rate. The modal rate in this instance is not so significant as the average rate, for the reason that the mode is largely the result of the predominance of 4159, bonds among those issued in 1929. Since the bonds issued at rates of 49, and 414%, when combined, exceed those issued at the modal rate, it may be concluded that, although the modal rate indicates the point of greatest density, because of the concentration at the lower rates the average is better suited for purposes of interpretation. Reference to the percentage distributions for individual years indicates that the modal rate is not particularly significant except in the year 1929. In all other years the average is to be preferred. For the year 1928 the average rate borne by local bonds issued in Missouri was 4.319%, a figure close to the average for the four-year period. This average of 4.31%, compares favorably with the average for all state and local bonds issued in the United States in that year, which was 4.44%. INTEREST PAYMENTS BY MissoURI AND OTHER STATES The interest payments made by a governmental unit in any fiscal year cannot be said to represent the aggregate cost of money in that year. Interest dates are adjusted in a manner that will accord with fiscal requirements, and as a result the payments made in a given year are not exclusively for money used in that year. At the close of a fiscal period there is an accrued interest liability on account of interest due on obligations that do not bear an interest date the same as that for the close of the fiscal period, and allowance would have to be made for this fact if interest payments were 1 National Industrial Conference Board, Cost of Government in the United States, 1927-1928, p. 55. STATE AND LOCAL INDEBTEDNESS 79 to be construed as indicating the aggregate cost of borrowed funds during the period in which the payments are made. Over a period of years, however, actual interest payments reflect the debt position of the government concerned. TaBLE 27: Torai INTEREST PayMENTS OF STATE GOVERNMENTS, Missourt AND OTHER STATES, 1913, 1918, anp 1923-1928 Source: United States Bureau of the Census, Wealth, Debt and Taxation, 1913; Financial Statistics of States series, 1918 and later years Computed by National Industrial Conference Board 1913 | 1918 | 1923 | 1924 | 1925 | 1926 | 1927 | 1928 73,169|8436,088/$1,852,542$1,676,433|$1,945,690|$3,006,325 $3,297,765i%3,218,105 51,797 69,306] 862,185] 1,197,044] 3,703.304( 4,184,872 3,859,640] 4,103,386 662] 26,450 6,948] 843,505] 899,674] 850,907 816,559 888,502 = i 1,415 138 37.462] 140,390 257,324 1,255,922 1,215,202] 1,142,000 185,419] 138,539: 124,931 109,639 128,597 124.367 157.6671 4,694,050 3,704,187) 5,667,947 5,944,465) 5,104,760 159,641; 145431 77,606 92,096 310,068] 1,185,448 976,174] 820.236 157459 130.459 123.459 116,459 A31,8110 836,907 618,388] 628,216 State 0 a Minn... lowa.... Neb..... .. Kan..... 14,800 .. Okla..... 201,529] 294,77: 225,288 Ark...... 37,515] 151,987 [35,111 LL... 02339 877%. 509.283) ‘nd......| 56,794 3146" 89,021 Shio ....:309,134} 322,346, ‘808,746! Wis... .. spine 144070) 151,459) Zen... ..|228,700| 371,186] 407,202 Per Capita Mo... Jinn... . owa.... Neb..... Kan..... Dkla..... Ark...... I...... nd. ....| Jhio. ...I Niseo.o.. Ken.... 0.02 0.02 0) 2.01 111 202 2 L Dav PO. 15 0.03 001 0.15 : 2.09 2.01! 301 0 1n~ vl 0.11 1.08 0N9 1k} Q Ung 0.14 £8 v.49 0.35 0.33 0.10 0.09 0.19 007 | 023 23 “1 50 2.37 ® 2.69 0.08 0.07 0.53 0.05 0.21 1.68 9.35 &O ).68 0.06 2.07 0.79 005 219 1.54 0.33 0.03 0.66 1.05 09 0.82 0.02 15 W).90 1.62 0.36 0.10 0.62 0.05 2.56 n.83 0.03 Q,13 h) 04 . Less than one half of one cent. Table 27 shows the interest payments made by Missouri and other states over a period of years. Missouri in recent years has been expending more than $3 million annually on account of interest. In the fiscal year ended in 1928 only three states in the group, Minnesota, Illinois, and Arkansas, expended a larger sum than Missouri on account of interest, while in the three preceding years only the first two states sxceeded the interest total of Missouri. In 1923 and 1924 80 THE FISCAL PROBLEM IN MISSOURI Missouri had larger interest payments than any other state in the group. The upward trend in Missouri’s interest payments since 1923 has, therefore, been more gradual than the trends for the three states mentioned. The more gradual change indicated is a reflection of the fact that the bonds which have been issued by Missouri were distributed more evenly as to time than were those of the other states. As a basis for interpretation, the interest payments of the several states have been converted to a per capita basis. The per capita interest payments of Missouri amounted to £0.90 in 1928, $0.93 in 1927, and $0.53 in 1923. In 1928 only two states in the group, Arkansas and Minnesota, had larger per capita interest payments than Missouri, while in 1923 Missouri expended a larger amount per capita for interest than any other state. 1 This was also true for 1918. CHAPTER III THE MISSOURI TAX SYSTEM * HE term “tax system” is a misnomer when applied to 1 the aggregate of sources from which the tax revenues of a state such as Missouri are derived. The word system implies that the total taxes collected are obtained from such sources and in such a manner that approximate equality of burden is maintained, and also that there is a definite coordination of the various sources of tax revenues, with the net result that no particular group of taxpayers can have occasion to complain because of any unreasonable discrimination. If such a result could be achieved at any given time, it is doubtful that it could long be maintained, for, with the constantly changing economic conditions of the different groups of taxpayers, the maintenance of even approximate equality represents a most difficult task. While it might be desirable to restrict the use of tax system to those cases in which the highest possible degree of equity had been attained through proper co-ordination of the several tax sources, such restriction would deprive us of a convenient collective term. For this reason tax system is used in this study to designate briefly the aggregate of the several taxes used by a governmental unit. Before considering the several taxes that comprise the Missouri tax system it is important to examine the constitutional provisions concerning taxation. A proper understanding of the tax system in its present form is not possible without appreciation of the fact that there are certain provisions in the fundamental law which impose conditions that must be observed in formulating changes in the revenue system of the state. While it is possible to amend the constitutional provisions, it is nevertheless true that these restrictions influence fundamentally the trend of development of the tax system. ¢ THE FISCAL PROBLEM IN MISSOURI CONSTITUTIONAL PROVISIONS The constitutional provisions concerning taxation are with few exceptions found in Article X.! Section 1 provides that “the taxing power may be exercised by the general assembly for State purposes, and by counties and other municipal corporations under authority granted to them by the General Assembly, for county and other corporate purposes.” The obvious implication of this section is that the power to tax is inherent in the general assembly or legislature. This section, as construed by court decisions, does not grant the taxing power to the legislature. Section 2 provides that the general assembly shall have no power to surrender or suspend the power to tax corporations and corporate property. Section 3 provides that taxes may be levied and collected for public purposes only. A second part of the same section contains the uniformity rule, that 1s, that “taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax.” The intent of this provision is to prevent discrimination in any jurisdiction among the taxpayers who are taxed on the same object of taxation. Section 4 provides that “all property subject to taxation shall be taxed in proportion to its value.” This provision imposes a definite restriction that precludes the possibility of levying special low-rate taxes on intangibles or levying taxes on the several classes of property at different rates. The provision that taxes must be in proportion to value has frequently been subjected to interpretation by the courts. In one case it was specifically pointed out that this section is not intended to secure equality of taxation throughout the state, but that it does require that taxes must be in proportion to values in the territory in which they are levied.” All that is required is that the property taxes raised by a given county, for example, shall be levied on all subjects forming a part of the taxable proverty in the countv ac-1 In the remainder of this section, Article X is not repeated. All section numbers refer to Article X unless otherwise noted. 2 State ex rel. v. Field, 119 Mo. 593, 24 S. W. 752, THE MISSOURI TAX SYSTEM 83 cording to their value. While on the surface this may appear to be a comparatively easy matter, in practice it is most difficult to achieve. On November 7, 1922, the electorate approved an amendment to Section 4, which provides that all motor vehicles subject to taxation in the state shall be subject also to license taxes. This amendment was necessitated by the fact that value is not the basis used in determining the amount of license tax payable by the owner of a motor vehicle. The license tax is not in lieu of property taxes; motor vehicles in Missouri are subject to both license taxes and property taxes. It is specifically provided in the constitution! that the local governments, the property therein, and the inhabitants thereof shall not be released or discharged from their proportionate share of taxes to be levied for state purposes, and commutation of such taxes in any form is prohibited. The general assembly is denied the right to tax for municipal purposes, but may by general laws vest in the corporate authorities the power to assess and collect taxes for such purposes. The State Board of Equalization is an administrative body, which is provided for in Section 18. This section states that it shall consist of “the Governor, State Auditor, State Treasurer, Secretary of State and Attorney-General,” and that its duty “shall be to adjust and equalize the valuation of real and personal property among the several coun-‘les in the State.” Section 5 provides that all railroad corporations in the state or doing business therein shall be subject to state and local taxation on the real and personal property owned or used. Such corporations may also be taxed on their gross sarnings, their net earnings, their franchises, and their capital stock, according to the provisions of this section. Section 21 provides for the payment of incorporation or organization taxes by all corporations, companies, or associations® organized under the laws of the state. The tax must be paid at the time of or before the filing of the articles t Section 9. 2 Section 10. ' Except those formed for benevolent, religious, scientific, or educational purposes. B4 THE FISCAL PROBLEM IN MISSOURI of association or incorporation. Additional taxes must be paid when the capital stock is increased. The real and personal property of the state, counties, and other municipal corporations, and of cemeteries is exempt from taxation by constitutional provision.! Lots and the buildings thereon used exclusively for religious worship, for schools, or for charitable purposes may be exempted from taxation by general laws. A lot thus exempted may not exceed one acre, when located in a city or a town or within a mile of the limits of a city or town. A maximum of five acres is permissible in all other cases. Real and personal property used exclusively by agricultural or horticultural societies may also be exempted by general law. All laws exempting property other than that which has been exempted by constitutional provision are specifically declared to be void.2 Provisions Concerning State Tax Rates The state tax rate on taxable property is definitely limited by the constitution. Section 8 provides that the state tax on property for ordinary purposes, exclusive of the tax necessary to pay the bonded debt of the state, shall not exceed $0.20 per $100 valuation, and that the maximum shall be $0.15 per $100 valuation whenever the taxable property of the state shall amount to $900 million. The latter figure has long since been exceeded, and the $0.20 per $100 maximum has therefore not been effective for many years. Section 14 provides for the levying and collecting of an annual tax sufficient to pay the accruing interest on the bonded debt of the state and to reduce the principal by an amount not less than $250,000 per annum. In addition to the provisions concerning property tax rates for state purposes, the rates for the organization tax are specifically mentioned in the constitution? As this tax is treated fully in a later section, it is not necessary to consider the rates at this point. Other sections of the constitution refer either directly or indirectly to tax rates and taxation for state purposes. For 1 Section 6. The property owned by the Federal Government, of course, is exempt. ? Section 7. 3 Section 21. THE MISSOURI TAX SYSTEM 85 example, the sections that authorize the incurring of state indebtedness usually contain provisions concerning the levying and collecting of taxes for the purpose of meeting interest and redemption payments. There are other sections,! some of which have no application at the present time, that either make specific reference to taxation or mention it incidentally. These sections are relatively unimportant for the purpose of this study and may be dismissed without further comment. Provisions Concerning Local Taxation The general provisions concerning taxes on property levied by local governments are set forth in Section 11. This section provides that taxes for county, city, town, and school purposes may be levied on all subjects and objects of taxation. The valuation of property for such taxes, however, must not exceed the valuation of the same property for state and county purposes. Rates for county purposes are limited as follows: in counties that have a valuation of $6 million or less or between $10 million and $30 million the maximum rate may not exceed $0.50 per $100; counties that have a valuation between $6 million and $10 million may levy not more than $0.40 per $100 of valuation; and those having a valuation in excess of $30 million are limited to a maximum rate of $0.35. These limitations may be exceeded for the purpose of erecting public buildings, but before the maximum rates may be exceeded the additional levy and the purpose must have been approved bya two thirds vote. In determining the classification of a given county, the last assessment for state and county purposes must be used. Tax rates for city and town purposes are also limited by Section 11. The limitations are on the basis of population. Cities having a population of 30,000 or more may levy. not more than $1.00 per $100 of valuation; those having a population between 10,000 and 30,000 may levy a maximum of 30.60 per $100; those having a population between 1,000 and 10,000 are limited to a maximum of $0.50 per $100; and towns with a population of 1,000 or less may levy not more 1 See, for example, Article I, Section 1; Article XIV, Section 1; and schedule, Section 8. 86 THE FISCAL PROBLEM IN MISSOURI than $0.25 per $100. The rates for city! purposes may be exceeded for building purposes, in the same manner as the rates for county purposes. The population of cities and towns as of the last official census of the state or of the United States is to be used in determining the classification of cities and towns. The maximum rates for school districts composed of cities that have 100,000 or more inhabitants is $0.60 per $100, and in all other districts the maximum is $0.40 per $100. It is provided, however, that by majority vote the rates may be increased to $1.00 per $100 in districts formed of cities and towns, and to $0.65 per $100 in the case of all other districts: These rates may be exceeded for building purposes, in the same manner as those for county purposes. For the purpose of determining the classification of school districts, the census data provided for the classification of cities and towns are to be used. It is specifically provided that St. Louis City may levy for municipal purposes, in addition to a municipal rate, a rate not to exceed the rate that would be allowed for county purposes if the city were part of a county. In addition to the county taxes that may be levied according to the provisions of Section 11, special taxes may be levied for road purposes. Section 22 provides that the counties not under township organization and the townships in counties having the township form of organization may levy a special tax not to exceed $0.25 per $100 of valuation for road and bridge purposes. When authorized by majority vote of the qualified voters residing in a road district voting ata special election, the county court of the county in which the road district is located is required to make a levy of not more than $0.50 per $100 of valuation of the property within the district for road purposes.? Taxes ComprisiNg THE Missouri Tax System The various taxes now used will be considered in the following order: (1) the general property tax, including the i No mention is made in Section 11 of additional rates for building purposes in towns. * Section 23. ratified at the general election of November 1920. THE MISSOURI TAX SYSTEM 87 private car tax; (2) the poll tax; (3) the inheritance tax; (4) the income tax; (5) special taxes on business, including incorporation taxes, the corporation franchise tax, the foreign insurance company tax, and the express company tax; (6) the gasoline tax and motor vehicle licenses; and (7) miscellaneous business and non-business licenses and permits. This order of treatment is not intended to indicate the relative importance of the several sources of tax revenue. The General Property Tax The general property tax is an important element in the state revenue system of Missouri, and predominates in the finances of all local governments in the state. The real =state and the tangible and intangible property of individuals and corporations are taxed at the same rate. The required uniformity of rates is, however, applicable only to a given taxing jurisdiction, and the combined state and local rate on property is not necessarily the same in the case of any two local governmental divisions. Merchants are taxed at general property tax rates on the largest amount of goods, wares, and merchandise owned or under their control between the first Mondays of March and of June in each year, and manufacturers are similarly taxed on all raw material and finished products, as well as tools, machinery, and appliances used or owned. These taxes on merchants and manufactures constitute a special category of general property taxes, which in official state sources is referred to as the “Merchants and Manufacturers Tax,” In form this tax is a license tax, but in fact it is a property tax. The exemptions from the general property tax are comparatively few in number. As has been seen, the constitution provides for the exemption of public property, cemeteries, and a certain amount of real property when used for charitable, religious, or educational purposes. Shares of stock in manufacturing companies are not taxable to the owners. It has been held by court decision that, if a corporation pays taxes on its property, the taxing of stock-1 Specific mention of the merchants and manufacturers tax is made in this -hapter in order that its status as a property tax may be definitely established. 88 THE FISCAL PROBLEM IN MISSOURI holders on the value of their shares would be double taxation.! This consideration is apparently deemed sufficient reason to justify the exemption. Property sent out of the state for an honest purpose is not taxed,’ and merchandise on which a license tax is paid is exempt? Manufacturers whose property is valued at less than $1,000 are not taxed,’ and the same is true of the property of agricultural and horticultural societies.’ Finally, bills and accounts receivable and other credits arising out of the sale of goods which were returned for taxation are exempt from the general property tax.’ TasLe 28: ProPeErTY Tax RATES! ror STATE PURPOSES, 1910 a~p 1915-1930 Source: Biennial Report of the State Auditor. 1927-19282 Yerr Revenue Tax Interest Taw Capitol Building Tu Blind Pensions | Soldiers’ Bonus Interest and Sinking Fund Total 1916 pQ 1915 | 0.1 1916 0.1. 1917 | 0.1" 1918 0.1. 1919 on 20 0.1 11 nny 122 'n7 723 Yog 924 105 925 % 926 927 1028 1929 1930 1 Per $100 of assessed valuation. 2 Rates for 1929 and 1930 obtained by correspondence with the State Auditor. The general property tax rate for state purposes is a combination of rates levied for specified purposes. Table 28 shows the total state rate and the distribution of the total among (1) revenue tax, (2) interest tax, (3) capitol building t State ex rel. Orr v. Buder, 308 Mo. 237, 271 S. W, 508, 2 See R. S. 1919, Section 12769 and case cited thereunder. 8R. S. 1919, Section 12766, as amended Session Laws, 1927, p. 472. 4 Session Laws 1923, p. 368-370. 5R. 8. 1919, Section 12754. THE MISSOURI TAX SYSTEM 89 tax, (4) blind pension tax, and (5) soldiers’ bonus interest and sinking fund tax, for the years 1910 through 1930. In no year since 1915 has the total state rate on property exceeded $0.18 per $100 of valuation. That rate was effective from 1915 to 1920, inclusive. For taxes of 1921 the rate was only $0.10 per $100, and the same rate was in effect in 1923 and 1924, that for the intervening year being $0.13. In recent years the total rate has shown a tendency to decrease. For taxes of 1928 it was $0.14 per $100; for taxes of 1929 it was $0.13; and for taxes of 1930 it was reduced to $0.12. Although five classifications are shown in Table 28, taxes were not levied for more than four of the purposes in any one year. Prior to 1922, the total state rate was composed of only three component parts. Blind pension and soldiers’ bonus legislation, which provided for the levying of certain taxes, augmented the number of individual rates comprising the total state rate, beginning with the early twenties. When these rates were first levied, however, the state did not impose an interest tax, and in more recent years there has been no occasion to levy the capitol building tax. These factors account for the maximum of four component parts in the years since 1921. For 1929 the state did not levy an interest tax, and the total rate of $0.13 consisted of 30.05 for revenue tax, $0.03 for the blind pension tax, and $0.05 for the soldiers’ bonus interest and sinking fund tax. Local tax rates on property vary greatly throughout the state. A comparison of the total property valuations' in recent years with the corresponding levy and collection data indicates an average local rate between $1.95 and $2.00 per $100 of valuation. The total local rate in certain rural sections is less than $1.00, while the maximum local rate in recent years was approximately $4.00. The latter rate, as might be inferred, is an urban rate. It is natural that local rates should vary, but it does not follow that the variations are solely attributable to differences in taxable wealth. The relatively higher urban rates are in large part necessitated by the greater variety of governmental functions and the fact that higher standards, particularly in education, are demanded. t Exclusive of the valuation of private car companies, 50 THE FISCAL PROBLEM IN MISSOURI Aside from differences in urban and rural rates, the most important factor causing differences in total local rates is unquestionably the variation in the ratio of assessed valuation to true value. Another important factor is the extent to which certain species of taxable property escape taxation entirely. If in the case of two local governmental units having approximately the same taxable wealth and maintaining the same governmental agencies the assessment ratio is much lower in the one than in the other, and if the amount of property escaping taxation is relatively much larger in the one than in the other, there can be no result other than a difference in tax rates. In cases such as this, complaints are frequently made by the governmental unit with the higher rate, without considering the underlying factors that cause. the differences. While a complete statistical analysis of local tax rates might be desirable, little if anything could be demonstrated without giving careful consideration in each case to factors such as those just mentioned. The differences in themselves may mean much or little. In the case of the general property tax in Missouri, it may be concluded that differences in rates do not necessarily mean differences in burdens, even though sections roughly comparable as to wealth are considered. The private car tax is a special form of property tax administered by the state. The value of tank, refrigerator, and other types of cars owned by car companies and individuals is fixed by the State Tax Commission? In determining the valuation for a given company or individual the average mileage traveled in the state in relation to total mileage is considered. The rate of taxation is also determined by the Commission. All the work of the State Tax Commission incident to the assessment and levying of the private car tax is subject to the ratification of the State Board of Equalization. In recent years the rate of taxation has been $1.50 per $100 of valuation.®? The rate of taxation, according to 4 Several interesting tables on local rates are to be found in The Taxation Sys. rem of Missouri, a report of the State Survey Commission, 1929, 2 Session Laws, 1927, p. 484. } Journals of the State Board of Equalization. THE MISSOURI TAX SYSTEM 91 the statutes, shall be the average rate of the entire state for state, county, municipal, and other local purposes. In the nature of the case the rate as fixed can be only an approximation of the statutory requirement. The receipts from the private car tax are appropriated to the counties on the basis of school enumeration? and are to be used for specified road purposes. The Poll Tax No state poll tax is levied in Missouri. Certain local governments, however, obtain a comparatively small amount of revenue from this source. Counties® not under township organization and townships* in counties under the township form of organization are authorized to levy a poll tax not to axceed $4.00 on every able-bodied male inhabitant over 21 and under 60 years of age, for road purposes, but such taxes cannot be levied by counties or townships on residents of incorporated cities. Special road districts’ in counties of both classes are given similar authority. Third-class cities may levy a poll tax not to exceed $2.00% those of the fourth class, not more than $4.007; and towns and villages, not more than $3.00.8 The age limits for poll taxes levied by cities, towns, and villages are 21 to 50 years, and the tax is applicable only to able-bodied males. Suffrage is not a prerequisite for any poll tax which may be levied. The Inheritance Tax Missouri has taxed collateral inheritances since 1899. Since 1917 all transfers at death have been taxed, subject of course to certain exemptions. The inheritance tax is unique among the several sources of tax revenue used by Missouri, in that the receipts cannot be predicted with any degree of accuracy, even though the tax has been in effect for many gears. The reasons are almost self-evident. The levying of the tax depends on an event not predictable as to time, and the volume of receipts in a given period of time is largely 5 R. S. 1919, Sections 10942 and 10819. sR. S. 1919, Section 8274. 7R. S. 1919, Section 8465. sR. S. 1919, Section 8559. | Session Laws, 1927, p. 434, :R, 8. 1919, Section 13017. IR. S. 1919, Section 10672. tR. S. 1919, Section 10918. 92 THE FISCAL PROBLEM IN MISSOURI dependent on the distribution of deaths among the several groups of the population, classified on the basis of wealth. Table 29 shows the several classes of beneficiaries, the exemptions allowed to each class, and the rates at which the respective shares are taxed. The rates begin at 19 on the first $20,000 above the exemption passing to a class A beneficiary and attain a maximum of 30% in the case of shares amounting to more than $400,000 passing to very distant relatives, strangers to the blood, or bodies corporate or politic. Consideration of the inheritance tax rate schedule would not be complete without mention of the liberal exemptions and marital rights accorded to the wife or the husband. The wife or the husband of a deceased person is allowed an exemption of $20,000 in addition to the marital rights. The latter are very liberal. The widow automatically receives a dower of one third of the lands of the deceased husband. The widow, however, may elect a child’s share in lieu of the dower right, if the husband dies leaving a child or children or other descendants,? but in order to elect a child’s share the widow must have a child or children by such husband living. Another section of the inheritance tax statutes provides that “when the husband or wife shall die leaving a child or children or other descendants, the widow or widower shall be entitled absolutely to a share in the personal estate belonging to the husband or wife at the time of his or her death equal to the share of a child of such deceased husband or wife.” This provision means that under the conditions stated the share of the personal estate passing to the husband or the wife is not subject to the inheritance tax.* In recent years several additions have been made to the inheritance tax statutes. In 1927 legislation’ was enacted that permits the state to take advantage of the 809, provision in the Federal act passed Feb. 26, 1926. Under this enactment an additional tax amounting to the difference LR. 8. 1919, Section 315. 8 R. S. 1919, Section 319, * No attempt is made to treat the subject of marital rights exhaustively. The examples given are merely intended to show their liberal nature. § Session Laws, 1927, p. 100, and 1929, pp. 103 ff, 2 Session Laws, 1927. p. 99. TaBLE 29: Missouri INHERITANCE Tax RATES Source: Revised Statutes and Session Laws of the State of Missouri Beneficiary Class A Husband, wife, or lineal descendant or ancestor of decedent, legally adopted child or lineal descendant of such, or child Yorn out of lawful wedlock. Exemption to Each Beneficiary Husband or wife, $20,000 in addition to marital rights? All others, $5,000 each except such lineal descendants as may be ‘diotic, insane, blind, or incapacitated, $15,000 each. LATSt £20,000 \fter the Exemption 1% | $20,000 to $40.000 297, $40,000 to 280.000 39% | $80,000 to $200,000 4% | $200,000 to $400,000 307, Over $400,000 607, Class B Brother, sister, or descendant of such, or wife, widow, or husband of child of decedent. o Class C “2 Brother or sister of parents of decedent or their lineal descendants. Class D Brother or sister of grandparents of dece. dent or their lineal descendants. Class E Persons of any other degree of collateral consanguinity or strangers to the blood, or bodies corporate or politic. Class F (1) County, city, town, or municipal corporation within the state. (2) Property ased for religious, charitable, hospital, missionary, scientific, benevolent, Bible, or educational purposes within the state. 3) Any beneficiary receiving less than 5100. _ 1 When the tax levied by the state does not equal 809% of the amount imposed by the Federal Government under Act of Feb. 26,1926, an additional tax equal to the difference between the total tax levied under the above rates and 80% of the tax levied by the Federal Government islevied. For explanation of marital rights, see p. 92. 94 THE FISCAL PROBLEM IN MISSOURI between 80% of the amount imposed by the Federal Government and the total tax levied according to the Missouri rate schedule is levied by the State of Missouri. The principal effect of this provision is to increase the taxes levied by the state on shares passing to the husband or the wife and children in the case of very large estates. Missouri has also enacted a law! providing for inheritance tax reciprocity in the case of personal property other than tangible personal property having a situs in the state, when the transferer at the time of death was a resident of a state or a foreign country that had a similar reciprocity statute on its books or did not impose a transfer tax or death tax of any character on such property of residents of Missouri. The Income Tax The Missouri income tax may be termed a general income tax. The same rate of tax, 19, is levied on the incomes of residents received from sources within and without the state, the incomes of non-residents from sources within the state, and the incomes of corporations, both foreign and domestic, from sources within the state. The 19} rate has been in effect since 1921. Prior to 1921 the rate was 1249}, for two years, and from 1917 to 1919 the rate of 159, as fixed in the original law? was in effect. The statutes® provide that the incomes of fifteen distinct classes of organizations, associations, or corporations shall not be taxed. Included in the exempt list are labor, horticultural, and agricultural organizations; co-operative marketing associations; mutual savings banks not having a capital stock represented by shares; non-profit fraternal orders providing benefit payments to members; domestic building and loan associations and non-profit co-operative banks operated without capital stock; cemetery companies operated exclusively for the benefit of members and without profit; non-profit religious, charitable, scientific, or educational organizations; chambers of commerce, business leagues, and the like; civic leagues, and other social welfare 1 Session Laws, 1929, pp. 102 ff. % Missouri levied an income tax during the Civil War period. “Original law,” as here used, refers to the modern period, that is, beginning with the law of 1917. 1 Session laws, 1927. p. 476. THE MISSOURI TAX SYSTEM 95 organizations not organized for profit; clubs organized for recreation, pleasure, and other non-profitable purposes; various mutual insurance companies on an assessment basis; title-holding companies operating on an expenses basis; Federal land banks and national farm loan associations; joint stock land banks, as to income derived from certain specific sources; and express companies and foreign insurance companies. EXpress companies and foreign insurance companies, as will be seen, are subject to special taxes on their gross receipts and are therefore exempt from the general income tax. In order to establish that it is entitled to exemption, any organization may be required to furnish such information as will enable the taxing authorities to determine its exact status under the statutes. In addition to the exemptions mentioned above, income received from the following specified sources is exempt: (1) proceeds of life insurance policies paid to individual beneficiaries and return premiums on life insurance, endowment, or annuity contracts; (2) compensation received under workmen’s compensation acts on account of personal injuries or sickness and damages received on account of same; (3) the value of property acquired by gift, bequest, devise, or descent? (4) interest on the obligations of the Federal Government or its possessions and interest on the obligations of the State of Missouri and the local governments in the state; (5) the compensation of public officers for public service where the taxation thereof would be repugnant to the constitution; and (6) income derived from any public utility performing functions of the national government or the state or its political subdivisions, or from the exercise of any essential governmental function accruing to any state, territory, or the District of Columbia. Some of the foregoing are not income under the definition as given in the statutes.® They are included in the list of exemptions primarily for the purpose of clarification. The personal exemptions are of the kind usually granted ander a state income tax. A single person is granted an exemption of $1,000; a married person or head of family, 1 Session Laws, 1927, p. 479. * The income from such property is taxed. 8 Session Laws, 1929, p. 429. 96 THE FISCAL PROBLEM IN MISSOURI $2,000.! When a husband and wife are living together, only one deduction of $2,000 can be made from their aggregate income. In the case of the head of a family, an additional exemption of $200 is allowed for each dependent child, if under eighteen years of age or if incapable of self-support because of physical or mental defects. A non-resident can claim personal exemptions by filing a return showing total income derived from all sources. Corporations are not granted an exemption. Special Taxes on Business Corporations The general property tax is by far the most important tax paid by business corporations in Missouri, judged from the standpoint of the amounts of taxes paid by these corporations to the state and local governments. Corporations, with the exceptions noted, also pay an income tax and certain taxes that may be be designated as special taxes. The group of special taxes includes (1) organization or initial taxes and entrance fees or taxes, (2) the corporation franchise tax and the annual registration fee, (3) the foreign insurance company tax, and (4) the express company tax. The organization or incorporation tax is based on authorized capital stock. Any concern incorporating under the laws of the state is required to pay a tax of $50 if its authorized capital stock is $50,000 or less. If the authorized capital stock is more than $50,000, $5.00 additional is payable for each $10,000 or fraction thereof over $50,000.2 If the stock of a concern does not have a specified par value, each share shall be deemed to have a par value of $100.3 Certain incidental fees are required for services rendered in the procedure of incorporation. The entrance fees or taxes on foreign corporations desiring to do business in the state are based on the proportion of capital stock represented by property located and business transacted in Missouri. The rates* are the same as for the initial taxes on domestic corporations, but, in addition to ! Session Laws, 1927, p. 482. ZR. 8. 1919, Section 9735. The $5 per $10,000 rate applies to later additions to the authorized capital stock. Corporations organized for benevolent, religious, educational purposes, and so on, are not required to pay the tax. 3 Session Laws. 1921, p. 664. 4 Session Laws, 1927, pp. 390 f. THE MISSOURI TAX SYSTEM 97 the entrance fee or tax, a foreign corporation is required to pay a fee of $10.00 for a license authorizing it to do business in the state.! An additional fee of $5.00 is required on withdrawal from the state. On the basis of revenue yielded, the corporation franchise tax is one of the most important of the group of special business taxes. The rates and the tax base are the same for domestic and foreign corporations. The base of the tax is the par value of the outstanding capital stock and surplus; nopar stock is considered as having a value of $5.00 per share unless the actual value exceeds that amount, in which case the tax is levied on the actual value and the surplus.? The Supreme Court of Missouri has interpreted surplus to mean “the excess of assets employed in the business over the par value of the outstanding capital stock without regard to liabilities.” The tax under this judicial interpretation becomes a tax on total assets, when the total assets of a corporation are in Missouri. Many corporations subject to the tax have only a part of their assets in the state. In that case the tax base is whichever is the higher of (1) the clear market value of the assets in Missouri or (2) the par value of the capital stock plus the actual value of no-par stock! multiplied by a fraction, the numerator of which is the clear market value of the assets in Missouri and the denominator of which is the clear market value of the total assets. The latter is particularly applicable in cases where a large number of no-par shares of small actual value are outstanding. As a result of the unusual interpretation given to surplus by the court, it can be said that the tax is not in conflict with the constitutional provisions that require uniformity in raxation. Also, there is no discrimination between corporadons with a large proportion of owned capital and those which rely largely on borrowed capital. The rate of the tax is $0.50 per $1,000, or one twentieth of one per cent. A corporation is not subject to the tax for the year in which it incorporates or qualifies. 1 Session Laws, 1927, p. 391. 2 Session Laws, 1929, p. 329. 8 State ex rel. Marquette Hotel Inv. Co. v. State Tax Commission, 282 Mo. 213, 221 8. W. 721. t Not less than $5.00 per share. 98 THE FISCAL PROBLEM IN MISSOURI In applying the tax to banks, deposits are regarded as funds of the individual depositor left for safe keeping and do not enter into the tax base. Express companies are not subject to the tax; nor are foreign insurance companies, which pay a tax on their gross premium receipts in the state. Corporations not organized for profit are also exempt. An annual registration fee is also required of corporations. The amount of the fee depends on the month in which it is paid. If paid by July 31,1t is $5.00. - After July 31 the fee is increased by $5.00 for each month until the end of the year. The maximum is, therefore, $35.00 for corporations remitting in December. The State of Missouri levies a special tax on foreign insurance companies. All insurance companies and associations not organized under the laws of Missouri are required to pay an annual tax! on the premiums received in the state or on account of business done in the state. The rate is 29, and the tax is in lieu of all other taxes, except that cities having a population in excess of 100,000 are given authority to impose an occupation license tax? on the agent or agents of such companies. The receipts from the foreign insurance company tax are divided equally between the revenue fund of the state, and the fund known as the county foreign insurance tax fund? The latter is used for state aid purposes, and the apportionment is made to the several counties on the basis of school enumeration. Express companies are subject to an annual tax on the gross receipts’ from business transacted within the state during the tax year, which for the purpose of this tax begins April 1 and ends March 31. They are not subject to the income tax, the franchise tax, or the annual registration fee. The gross receipts tax may therefore be regarded as in lieu of these other taxes. The rate of tax is $2.50 per $100 of gross receipts from business transacted in the state during the tax year. 1R. 8. 1919, Sect. 6387. ZR. 8. 1919, Sect. 6392. Only one tax may be imposed on a single company, and the maximum rates are fixed by this statute. 2R.S. 1919 Sect. 6388. ¢R.S. 1919, Sect. 6390, SR. S. 1919, Sect. 13055. THE MISSOURI TAX SYSTEM Motor Vehicle Taxation Missouri has levied a tax on gasoline since January 1, 1925. The rate is two cents per gallon, and the tax is imposed on all distributors or dealers refining, manufacturing, producing, compounding, shipping, transporting, or importing motor vehicle fuels distributed or sold within the state! Missouri is one of a comparatively few states in which the initial rate has remained unchanged for so long as five years. Cities are also authorized to levy a tax on gasoline. The complete schedule of motor vehicle and related license taxes applicable in Missouri is given in Table 30. It will be noted that passenger cars are taxed on the basis of horsepower. On the other hand, motor trucks and buses carrying freight and merchandise or more than eight passengers are taxed on the basis of capacity in tons, while buses transporting persons for hire are taxed on a passenger capacity basis. Cities are authorized to levy motor vehicle license taxes at rates not to exceed one third of the state rates. Other Licenses and Permits The gasoline tax and the motor vehicle license taxes are commonly classified as business licenses and non-business licenses, respectively. The state also collects considerable amounts through miscellaneous business licenses, including dairy licenses, receipts from the sale of soft drink stamps, and so on. Hunting and fishing licenses are imposed, and the receipts are paid into the game protection fund. The local governments also receive considerable revenues from miscellaneous licenses and permits. Even a partial enumeration of the sources and rates of tax would require much space, in fact more than their importance would justify. Since on the whole they are a minor source of income, they may be dismissed without further comment. 1 Session Laws, 1925, pp. 283 f. TasLe 30: Anxnuar Motor VenicLE RecistraTiON License Taxes, Missouri, 1930 Source: Prentice-Hall State Corporation Tax Service Passenger Cars Horsepower! Less than 12, $7.50 12 under 24, 10.50 24 under 36, 16.50 36 under 48, 22.50 48 under 60, 25.50 60 under 72, 31.50 72 and over. 37.50 Electric cars, 10.50 Motor Trucks and Buses Carrying Freight and Merchandise or More Than Eicht Passengers Tons Capacity? Less than 2 tons, $10.50 ? less than 5 tons, 18.00 . less than 6 tons, 27.00 6 less than 7 tons, 30.00 7 less than 8 tons, 36.00 Above 8 tons, $15 each ton or major fraction thereof. Buses Transporting Persons for Hire Between Fixed Terminals or over Regular Routes 7 passengers or less, $40.00 7 to 12 passengers, 90.00 12 to 18 passengers, 140.00 .8 to 24 passengers, 180.00 “bove 24 passengers, 230.00 Over irregular routes, one half of above fees. Dealers and Manufacturers $21 for certificate of registration and 2 sets of number plates. Additional plates, $10.50 per set. Cars in transit, $2.50 for set of 10 certifi. cates Motorcycles $6.50 7.50 with side car attached. Chauffeurs Registered operators, $3.00 1 The horsepower is determined by squaring bore of cylinder in inches, multiplying by number of cylinders, and dividing by 214. Steam car horsepower rating determined by commissioner, * Trailers are charged one half of fee for motor trucks of like weight; semi-trailers, one fourth. For freight or merchandise motor vehicles, manufacturer’s rated live load capacity governs: for passenger vehicles, capacity determined by multiplying adult seating capacity by 150 lbs. CHAPTER 1V STATE AND LOCAL TAX REVENUES HE tax system of Missouri was outlined in the preceding chapter. The purpose of the present chapter is to show the extent to which the several sources of taxation contribute to the total tax revenues of the state and local governments. Although absolute amounts obtained from a given source are significant, changes over a period of time in the proportion of total tax revenues derived from that source are of greater importance. For example, the revenue derived from the general property tax may show a considerable increase over a period of years, but if the increase is at a lower rate than the increase in the total revenue from taxes, it follows that there has been a relative decline in the income from the general property tax. Only by considering a particular tax in relation to total revenue from taxes can a true appreciation of its relative importance be obtained. Sources oF STATE Tax REVENUE The most significant change in the sources of the tax revenue of Missouri over a period of years is the tremendous decline in the proportion of the total that is obtained from the general property tax. In 1903 the total tax revenue of the state amounted to slightly more than $4.3! million, and almost $3.0 million, or 69.19% of the total, was attributable to the general property tax. In 1913 the total tax receipts of the state were $6.2 million, and of this amount 52.19? represented general property taxes. The total taxes received by Missouri in 1918 were not much larger than in + Computed from United States Bureau of the Census, Wealth, Debt and Taxation, 1913, Vol. II, pp. 38 f. 2 Computed from United States Bureau of the Census, Wealth, Debt and Taxation, 1913, Vol. II, pp. 37 f. 102 THE FISCAL PROBLEM IN MISSOURI 1913, amounting to $7.7 million.! Of this amount, general property taxes accounted for 51.79,. Other important sources of state tax revenue in the years 1903, 1913, and 1918 were the inheritance tax, liquor licenses, and various taxes on business. Liquor licenses and other imposts amounted to $1.5 million? in 1913, or almost 259, of the total state taxes collected. In 1918 taxes on the liquor traffic amounted to about $1.4 million,? or 18.19, of the tax revenues of the state. This source of revenue passed out of existence when national prohibition became effective, and the resulting loss of revenue was one of the reasons for the adjustments? made in the tax system during that period. ‘Table 31 shows the state tax revenues of Missouri for the years 1923 through 1928, distributed according to sources and a percentage distribution of the total taxes for each of the several years. The tax revenues of the state more than doubled between 1918 and 1923, and the total for 1928 was almost twice as large as that for 1923. The total for 1928 amounted to almost $34.1 million. Most significant of the many changes in the importance of the several sources of tax revenue is the relative decline of receipts from the general property tax. While as late as 1918 the general property tax accounted for more than 509, of all state taxes, in 1923 only a little more than one third of the taxes collected were attributable to this source. In the year 1924 there was a further decline to 26.39%, and since that year the general property tax has not accounted for as much as 199, of the total state tax revenue in any year. This does not mean that the total receipts from the general property tax have been decreasing, although there was a sharp decrease in 1924. Since the latter year the total for each vear has been larger than that for the vear imme-1 United States Bureau of the Census, Financial Statistics of States, 1918, pp. 70 f. . Computed from United States Bureau of the Census, Wealth, Debt and Taxation, 1913, Vol. II, pp. 37 f. ied States Bureau of the Census, Financial Statistics of States, 1918, pp. 70 f. * The income tax rate was increased from 34% to 114%, in 1919. TasLE 31: State Receipts FrRoM Taxes in Missouri, 1923-1928 Source: United States Bureau of the Census, Financial Statistics of States series lh > +3 Year General Property 1923 36,035,279 1924 4,684,529 1925 | 4.724.858 1926 | 5,203,107 1927 1 5,793,955 1999 430.440 Special Property 30, 419,035 416,016 537,843 648,591 927.835 [nheritance 1,061,977 }195,543 169,045 1,901,419 1,937,189 | 039.720 ncome 32,867,7. 3,344,624 3,606,374 4,336,118 4,029,959 1697 603 Other special £295,43¢ 261,607 447,559 321,490 322,862 79% 949 Gasoline 54,148,278 5,892,341 6,234,739 f 634.937 Motor Vehicle | icenses 7931713 4,454,278 7,183,761 7,809,281 8,102,717 2615037 Business Licenses »2,027,648 2,250,079 2,399,218 2,649,165 2,917,828 2.965.414 Non-Business _icenses Dermits p163,57/ 208,228 288,050 304,172 335,592 347.807 Total Taxes 11,/40,67. 17,819.92; 25,383,159" 29,954,936) 31,323,432 "4 057.034 Total Per Capita $5.10 5.09 7.21 8.46 8.79 9.50 Percentage Distribution JL 1924 29 1925 18.6 1926 17.4 1927 1a. 40 1 [ ’ J 46 6.3 ’ 6.2 16.8 14.2 | | 14.5 | it 12.9 10 in 0 16.3 19.7 | ng ta Lr 28.3 9.5 26.1 8.8 75.9 ae | ] tb) 100.0 100.0 | 100.0 100.0 100.0 104 THE FISCAL PROBLEM IN MISSOURI diately preceding, reaching a maximum of $6.4 million in 1928. The amounts shown in Table 31 for special property taxes represent receipts on account of the corporation franchise tax. The annual receipts from this tax have been increasing and amounted to $1.9 million in 1928, or 5.79% of the tax revenues of the state. This proportion was only slightly larger than that for each of the three preceding years. In 1923 and 1924 this tax accounted for almost 89, of the tax revenues of the state. Although receipts from this source increased each year during the period 1923 through 1928, the rate of increase was more gradual than the increase in total tax receipts. Inheritance tax collections were larger in 1928 than in any other year of the period covered by Table 31. The 1928 collections from this source amounted to more than $3.0 million, or almost three times as much as in 1923 and more than 509 more than in either of the years 1926 and 1927. While a considerable variation in the receipts from the inheritance tax is to be expected, the legislation of 1927, which authorized the state to take advantage of the 80%, provision in the Federalact passed on February 26, 1926, doubtless accounted in part for the increase in 1928. The receipts from this source varied from 4.6%, to 8.99, of total tax receipts during the years included in Table 31. Total collections on account of the income tax increased each year from 1923 to 1926, amounting to $4.3 million in the latter year. Collections in 1927 amounted to $4.0 million, and the total for 1928 was only $3.7 million, or 10.87% of the total tax revenues of the state. Although the collections from this source were larger in 1926 than in any other year of the period, the largest proportion of the total state tax revenue derived from this source was obtained in 1924, when income tax receipts accounted for 18.89, of the total. The declining proportion of total taxes obtained from this source in recent years is worthy of comment. In 1927 the income tax statutes were amended so that the tax would be levied on resident and non-resident individuals and on domestic and foreign corporations on the basis of net income STATE AND LOCAL TAX REVENUES 105 derived from sources within the state.! The purpose of the amendment was to remove discriminations between resident and non-resident individuals and between corporations and individuals. The result was a narrowing of the tax base. The law was again amended in 1929, and again residents were taxed on net income whether derived from sources within or without the state.? The latter change was necessitated by the need for additional revenue. Changes in the statutes affecting the tax base, variations in the efficiency of administration, and the trend in business conditions all have their effect on receipts from the general income tax. When there are three variables it is difficult to designate any one as predominant during a short period. The incorporation or organization tax and the private car tax? are classified as other special taxes in Table 31. The receipts from other special taxes in no year of the period amounted to as much as 29, of the tax revenues of the state. By far the largest part of the totals given in the table is accounted for by the incorporation tax. In 1928 the receipts from the incorporation tax amounted to $329,396, and those from the private car tax amounted to $69,546. Since 1924 the gasoline tax has been an important source of state revenue. In the first year in which the gasoline tax law was in effect the receipts exceeded $4.1 million and in 1928 reached $6.6 million. The increase during the fouryear period amounted to almost 60%. In 1926, 1927, and 1928 this tax accounted for about 209, of the total tax revenues of the state. In 1925, which was the first year in which the gasoline tax was levied, it ranked third in the amount of state revenue produced, being exceeded only by motor vehicle licenses and the general property tax. In the later years the gasoline tax ranked second and was exceeded only by motor vehicle licenses. The revenue from motor vehicle licenses amounted to $8.6 million in 1928, a sum approximately 309%, greater than 1 Session Laws, 1927, p. 476. 2 Session Laws, 1929, pp. 423 f. In the preceding chapter this tax was considered in the section on the general oroperty tax. The base for the tax is property, and the rate is the approximated average general property tax rate throughout the state. However, this tax is ‘ncluded under “other special taxes” by the United States Bureau of the Census, and for the sake of uniformity in later sections no change is desirable. 106 THE FISCAL PROBLEM IN MISSOURI that obtained from any other source in that year and considerably more than twice as much as was received from the same source in 1923. The increase since 1923 has been gradual, except in 1925, when the receipts exceeded those for the preceding year by a large amount. In 1925 motor vehicle licenses for the first time became the most important source of state revenue. Since that time this source of revenue has ranked first by a wide margin, and in all years later than 1923 it accounted for 25%, or more of the tax revenue of the state. The highest proportion was attained in 1925, when 28.39%, of the state tax revenue was obtained from motor vehicle licenses. When’ the receipts from the gasoline tax and motor vehicle licenses are considered jointly, it is found that for the years during which the gasoline tax has been in effect the combined receipts from the two sources amounted in each year to at least 44%, of the total tax receipts of the state. The proportion attributable to these sources remained practically stationary for the four-year period 1925 through 1928. Business licenses, including the foreign insurance company tax and the express company tax, accounted for almost $3.0 million in 1928. There has been a rather steady increase in the volume of receipts from these sources, but the increase has been more gradual than in the case of total taxes, with the result that the proportion of the total attributable to business licenses has been declining. In 1928 the business license classification accounted for 8.79, of the tax revenues of the state. Considering the period 1923 through 1928 as a whole, three important facts are noteworthy. First, the receipts from the general property tax showed a large relative decline; second, income tax collections increased during the earlier years of the period, but declined during the latter years both absolutely and in relation to total taxes; third, motor vehicle taxation assumed first place in the revenue system of the state. When it is remembered that highway finance has predominated in the fiscal affairs of the state in recent years, the increase in motor vehicle taxation seems entirely logical. STATE AND LOCAL TAX REVENUES 107 Table 31 also shows total state taxes on a per capita basis. [n 1928 the per capita state taxes amounted to $9.50, and this figure represented a considerable increase over the preceding year. In 1923 state taxes on a per capita basis amounted to $5.10. The increase from 1923 to 1928 therefore amounted to more than 869. Sources oF LocaL Tax REVENUE While the state government in Missouri in recent years has been obtaining less than 209%, of its tax revenue from the general property tax, the local governments have been securing more than 909%, from this source. Although so large a proportion may at first seem unusual, such is not the case, for more than 90%, of the tax revenue of all of the local governments in the United States consists of receipts from the general property tax. Local tax receipts in Missouri amounted to $104 million in 1928, as compared with $100.9 million in 1927 and $78.6 million in 1922. The increase from 1922 to 1928 amounted to more than 329,. The proportion of total local revenue attributable to the general property tax was somewhat lower in 1928 than for the other years for which data are given in Table 32. The decline from 94.39 in 1927 to 92.99, in 1928 was caused by an increase in the receipts from licenses and permits, particularly in the City of St. Louis. Per capita local taxes amounted to $29.00 in 1928, as compared with $28.32 in 1927 and $22.73 in 1922. The rate of Increase in per capita local taxes has been more gradual than in the case of per capita state taxes. Local taxes on a per capita basis, however, were more than three times as large as state taxes for the year 1928. Too much significance should not be attached to the fact that per capita local taxes in Missouri increased at a less rapid rate than state taxes. The reason is not to be found in a low rate of increase in local taxes, but in the very rapid rate of increase in state taxes, whether considered as absolute amounts or on a per capita basis. Considerably more than one half of the local taxes collected in Missouri are accounted for by the four largest 108 THE FISCAL PROBLEM IN MISSOURI cities, including the school and other special districts in these cities. The City of St. Louis in1928 accounted for more than one third of the local taxes collected in the state. While the general property tax is the most important source of tax revenue used by the city governments, it does not predominate to the same extent as it does when all local governmental units are considered. Licenses and permits are a source of considerable city revenue and reduce the proportion of the total that is accounted for by the general property tax. TaBrLE 32: Tax Receipts or Missouri Local GOVERN-MENTS, 1922, 1926, 1927, axp 1928 Source: United States Bureau of the Census, Taxes Collected, 1922, and National Industrial Conference Board, Cost of Government in the United States, 1927-1928 Computed by National Industrial Conference Board Amounts in Thousands J952 1926 1927 Source of Revenue General property. .............. Special property................ Pll, vise ww grins «pr + x pinimorincn + naa Licenses and permits. ........ $74,106 ‘3 2:9 4.152 0,155 | $96,535 264 264 265 5,270 5,471 7,151 78,565 © 96,597 | 100,890 ' 103,951 Total taxes. ..... General property... ... Special property... .......... Poll. ooseuniesssmamnsrnsssvue Licenses and permits. . . ........ Percentage Distribution Gy $43 |, 943 92.9 G1 .. is i. 0.3 | 0.3 0.3 0.2 5.3 5.4 5.4 6.9 1000 | 1000 | 1000 | 1000 Per Capita General property. . 21 . 325.71 | $26.71 ‘ Special property..... ..... .. ro a es .. 2 UY (Tc J NN (X: 7 | 0.07 0.07 Licenses and permits. .......... 1) 1.49 1.54 1.99 _ Total taxes. .......... .. $27.07 | 2833 | $29.00 1 Figures for licenses and permits and total taxes are revised figures which will be published in “Cost of Government in the United States, 1929-1930." The total tax receipts of St. Louis, Kansas City, St. Joseph, and Springfield, including their school and other special districts, for a period of years are shown in Table 33. A percentage distribution of the combined data for the STATE AND LOCAL TAX REVENUES 109 four cities is also shown in this table. For the fiscal year ended in 1928 the general property tax accounted for 89.0% of the total tax receipts of the four cities, as compared with 91.8% in 1923 and 82.29% in 1913. The smaller proportion in 1913, as well as in 1918, was due to receipts from liquor licenses, which in Table 33 are classified as business licenses. Because of the adoption of the national prohibition amendment, the receipts from business licenses were lower in 1923 than in 1918. In later years they have increased, but relatively they have not attained so important a place in the revenue system of the cities as they held before the eighteenth amendment became effective. Of the cities for which data are presented in Table 33 only Springfield collects a poll tax. This source accounts for only about 19 of the tax revenues of that city. Non-business licenses in recent years have accounted for only about 29%, of the tax revenues of the four cities. Although special assessments are not regarded as taxes in economics or in law, they deserve mention in connection with the other data for the four cities. In theory, a special assessment represents a charge made against property because certain improvements made or to be made tend to increase the value of the property proportionately. This form of contribution is particularly important in financing certain types of municipal improvements. Collections on account of special assessments are ordinarily irregular in amount. For example, in 1928 the four cities collected from this source about $6.2 million and in 1927 more than $6.8 million, but in 1926 the total was only slightly in excess of $4.7 million. As a basis for interpretation, ratios of special assessments collected to general property taxes and to total taxes were computed. These ratios comprise the lower half of Table 34. The ratios were found to be much higher for the year 1913 than for any other year, indicating a relative decline of this source of urban revenue. In 1928 special assessments collected in the four cities were equivalent to only 129, of general property taxes and 10.7% of total taxes from all sources. Since 1923 Kansas City has made less use of special assessments than St. Louis. On the other hand, St. Joseph TasLE 33: Tax Receirrs oF St. Louts, Kansas City, St. JosEPH, AND SPRINGFIELD, 1913, 1918, axD 1923-1928 Source: United States Bureau of the Census, Financial Statistics of Cities series Combined data computed by National Industrial Conference Board ren nS imi peegeeeegeiSr iio i——— ese eeseeeererereemerer ee — TT io13 | wis | 123 | 1924 | 12s | wwe | 107 | 1928 Source of Rever-General property tax............. Special property taxes............ Business license taxes. ............ Non-business licenses— permits. . .. Total taxes St. Louis $11,792,966 $14,061,871 | $24,821,666 | $25,003,623 | $25,666,998 1 $27,664,863 | $29,232,166 | $32,122,457 661,60 986,463 .. .. .. .. ait pe 1,989,101 | 1,990,677| 1,920,196] 2,198,118} 2,169,057" 2,261,700 2,230,830 Jas12 4 173,771 213,839 498,621 545,335 597,886 628,961 625,040 A (4.617.445! 17,052,850] 27,240,483 | 27,747,076 | 28,433,941] 30,555,524 | 32,088,036 | 36,734,941 General property tax..............! Special property taxes. ............ Business license taxes. ............. Non-business licenses—permits. .... Total taxes. Kansas City 1,154,876] 6,852,754" 12,662,046] 13,697,964] 13,341,716] 14,124,013] 14,791,5211 16,058,524 .. 5,404 .. .. .. . =. .. 566,005| 739.497 576,233 s13,891| 873294] 892,502| 1,109,664 bi 373.770 109,084 132,464 297,479 292,916 347,830 374,198 340,418 yr 4.829.965] 7,730,1191 13 35.750" 14,508,771 15,062,340 | 15,390,713 | 16,241,603 | 17,432,204 St. Joseph General property tax. ............ | 919,812] 1,148.423| 1,637,505 Business license taxes. ............ 145,975 124,577 140,136 Non-business licenses—permits. ..... 13,125 15,748 34,812 Total taxes. 1,078,917 1,288,748 [1.812.452 1,917,186] 1,908,477] 2,017,9981 2,296,561] 2,043,451 134556 | 143,676 122,382 155,739 } 241 550 33,321 33.931 43232 48,573 ; 20850431 2086,084] 2,183.612] 2,500,873] 2,254,831 General property tax. ............. Poll tax. .......covnveinianinnenes Business license taxes. ............. Non-business licenses—permits. . . .. Total taxes. 341,546" 5374. 54.458 | 5.317! 406.695" 514.820" *nringfield gn 7° 675 0ss| 718 480 507,077 779,952| 852,408] 1,042,380 1,132,013 10,722 8.754 11.146 12,766 95000! 101276] 112044 26,773 29,508 31,613 } 132s 912,447 | oorots| 1197183] 1,286,008 < General property tax. ............ Special property tax. .............. Polltax.....ooiieninmennannnnnnn. Business license taxes. ............. Non-business licenses—permits. . ... Four Cities Combined 17,209,200 : 22,515,698" 39.858,997 | 41,344,448 | 42,197,1431 44,659,282 47,362,628] 51,356,445 661,607 991,867 .. .. .. .. .. .. 5,374 6,230 | 8,378 9,098 10,722 8,754 11,146 12,766 2,755,539 | 2,930,057 2,679,736| 3,192,283] 3,281,027] 3,377,860| 3,608.27) \ 335 563 301,297 372.9% 856,403 899,052 1,006,420 1,075,899 1,045,644 Any 20,033,017 70,816,537] 43,403,514 45,444,881! 4< 405212" 49,191,79¢" 52,007,9¢ | 57,708,074 Total tav-~ General property tax. ......o0nev.. Special property tax. .............. Poll tax. ...oovvminiiaiiiaaiaannn Business license taxes. ............. Non-business licenses—permits. . .. Percentage Distribution: Four Cities Combined 82.2 84.0 91.8 91.0 90.8 | 90.9 91.0 89.0 3.2 3.7 .. .. .. .. .. .. ® ® ® ® ® ® ® ® ‘3.2 10.9 6.2 7.0 7.0 6.9 7.0 11.0 1.4 1.4 2.0 2.0 2.2 2.2 2.0 °¥ Total taxes... co 1000 1000 | 1000 1000 _ 1000 1090 1000 1000 + Less than one tenth of one per cent. TABLE 34: SpeciAL AssEssMENTS CoLLECTED BY ST. Louis, Kansas City, St. JOSEPH, AND SPRINGFIELD, 1913, 1918, ann 1923-1928 Source: United States Bureau of the Census, Financial Statistics of Cities series Computed by National Industrial Conference Board or — St. Louis. ......... Kansas City....... St. Joseph........ Springfield. ...... Total..... 1.13 27,325,532 _1o18__ 1923 51,808.61 20,0, io co 1¢ 125 1926 1927 i 3,269,181 $5,287,042 To 75¢213 | 696 760 : 63.879 54¢ 7d Lo ZF Ee = co mw. 1928 4,262,805 589.294 717595 415,669 S185,763 Matin « © Cmaniql Agsessments to General Pronertv Taxes and Total Tavee—Par Cons — pt rN) 1 General Property Tax A 7 1 T-3 . ‘Jen~ Genera Geera Ll: 1028 General > Total roperty ‘ x Taxes : 12.1 3.4 31.8 1. 32.3 07 LT St. Louis. ..vveovnnnn Kansas City.......... St. Joseph. ......... Springfield....... Total... TasLE 35: ToraL AND Per Caprra Tax Recerprs oF Missourt aNp OTHER StaTEs, 1923-1928 Source: United States Bureau of the Census, Financial Statistics of States series Computed by National Industrial Conference Board Amount Per Capita IE 19°" GT yor 1772: 593 217 791 AY, e99 v7.27 10’ 17,819,971 41,963,19% 12,967,605 7,389,506 10,772,719 9,618,940 11,041,252 12,296,16¢ 26,794,515 36,765,628 '4,359,891 "037 77 1975 $29,954,936 41,926,363 26,993,580 ‘1,876,823 743.847 9,042,500 16,142,258 57,504,964 2216,357 14653,030 1,730,324 1727 INT BL33 45 17.218,35 17.494.732 1.544370 0,070,201 (9,411,346 16,719. "1,507.7 oT RFE Thik,. $IL057,036 42,968,390 25,570,654 77132.224 776.417 005. <2 | QT ay 1073 3 ] 3 3,3 104° 8. 9. In Bi TiSSOUTi. Laue aan “innesota......... YW is us van vive « ‘ebraska.......... LANSBS..erinnnn Jklahoma........ “rkansas.......... ‘Hnois...oovunnnn adiana........... ios eens wees Visconsin. ........ Zentucky...... 1%. 775,383,159 39,054,710 25,198,770 7.210.462 asd 20 24520 3 REE} li. Li 80S "06 98 “7 6 <4 oY “3 .% al. 3 105 5.39 5.97 : £61 2d 7.81 i 9.18 60 | 945 | 9386 976 | 103€ | 10.44 si | 507 | 574 wd pr Lt 70, 2 3100! 3,767,08. 14,541,07 egg’ Ji | 6.0 10. 345 yl ERY pel 081, kc “NAC Lr” Bri 3Q%mmsming 4 pa STATE AND LOCAL TAX REVENUES 113 has made greater use of this method of financing than has any other city of the group. State Tax Receipts IN Missourr AND OTHER STATES In this section the total state taxes of Missouri and the use made of the principal sources of tax revenue will be compared with similar data for the eleven states used as a basis for comparison throughout this study. In each case the absolute amounts are converted to a per capita basis, and in considering the important sources of tax revenue emphasis will be placed upon the per capita data as well as the percentage relationships of collections from specific sources to tax receipts from all sources. It should be kept in mind that there is considerable variation in the functions that are financed by the state governments and in the degree to which certain functions, such as education, are financed out of state funds. Such variations obviously have some effect on tax revenues. It is not possible, however, to make an accurate comparative appraisal of the factors that might cause such variations. Total Tax Receipts Table 35 shows the total state taxes collected in Missouri and the other states for the fiscal years! ended in 1923 to 1928, inclusive, and in Chart 3 per capita collections for 1928 are shown. In 1928 state tax collections in Missouri were exceeded by those in only four states of the group, Minnesota, Illinois, Ohio, and Wisconsin. In 1923 state tax collections in Iowa and Indiana, as well as in the four states just mentioned, were larger than in Missouri. Examination of the data for the intervening years indicates that, while in Missouri state taxes in each year reached a larger total than in the preceding year, such was not the case for a number of other states. It is not to be inferred that the increase in Missouri was spread gradually over the period of years. The increase was not distinctly gradual, but it was, nevertheless. continuous. On the other hand, the data for 1 “Fiscal year’ will not be used in the remainder of this section. . The data are for fiscal years ended in the calendar years as indicated. 114 THE FISCAL PROBLEM IN MISSOURI Minnesota, for example, indicate that state tax collections in that state were smaller in 1925 than in 1924 and in 1928 than in 1927. The trend in the latter state was definitely upward throughout the period, but the increase in total collections was neither gradual nor continuous. In 1923 per capita state tax collections in Missouri amounted to $5.10, and in that year only one state in the group, Minnesota, showed per capita state taxes In excess Cuart 3: Per Capita Taxes, Missourt AND OTHER STATES. 1928 ‘ MINNESQTA $17.00 NEBRASKA 12.59 WISCONSIN 12.14 IOWA 12.05 KANSAS 10.66 INDIANA 10.42 KENTUCKY 9.71 ILLINOIS 9.58 OKLAHOMA 9.52 MISSOURI 9.50 OHIO 8.89 ARKANSAS 851 ETE of $10. Two states, Oklahoma and Arkansas, showed smaller per capita collections than Missouri. Per capita state tax collections in Missouri amounted to $9.50 in 1928, a smaller amount than in any other state of the group except Arkansas and Ohio. Considering the period as a whole, it is evident that state taxes in Missouri on a per capita basis are not particularly high as compared with the other states. Arkansas, a state with a much smaller per capita wealth, showed larger per capita state taxes for four of the six STATE AND LOCAL TAX REVENUES 115 years. In four of the years per capita state taxes in Ohio were smaller than in Missouri, but it should be remembered that in Ohio state taxes in 1926 and 1927 comprised a smaller proportion of combined state and local taxes than in anv other state of the United States. The General Property Tax Table 36 shows the general property tax receipts of the several state governments. In 1928 Missouri collected a smaller amount on account of the general property tax than any one of the states in the group, with the exception of Oklahoma and Arkansas. In the preceding year only Oklahoma and Ohio obtained less revenue from this source than did Missouri. The relationship between general property tax collections and total tax collections in the several states forms a more interesting basis for comparison than do absolute amounts. For example, in 1928 Missouri obtained a smaller proportion of total tax revenue from this source than any other state except Oklahoma, while in 1925 and 1926 the proportion for Missouri was smaller than for any other state except Ohio. In 1923, however, the proportion for Missouri was larger than for three other states, Minnesota, Oklahoma, and Ohio. Of the group of states, only Oklahoma derived a larger proportion of the total tax receipts from this source in 1928 than in 1923. In a number of states, including Missouri, the relative decline between these years was very considerable. For example, the general property tax accounted for 70%, of the total state tax revenue in Arkansas in 1923, but only 29.6% in 1928. Per capita state general property taxes in Missouri are relatively small as compared with the other eleven states considered as a group. Only Oklahoma and Ohio showed smaller per capita collections from this source in 1928, and in all other states the per capita collections were much larger than in Missouri, the per capita collections varying between $2.52 for Arkansas and $7.95 for Nebraska, as compared with %1.79 for Missouri. 1 National Industrial Conference Board, Cost of Government in the United States, 1927-1928. pp. 74 f, 116 THE FISCAL PROBLEM IN MISSOURI TasLE 36: General Property Tax Receipts oF MissoURI AND OTHER STATES, 1923-1928 Source: United States Bureau of the Census, Financial Statistics of States series Computed by National Industrial Conference Board 198 tea | 135 | 1926 | 1927 1928 +6,00,27918,684,520184,704,858(#5,203,107]85,793,95586,430,440 9,032,845! 9,571,637]15,573,495(12,249,764|14,331,114{11,438,131 1.414.311 9673.719]11,834,909(11,533,327' 1,970,982/10,128,371 2229949 6,475,349] 5.806,718| 6,972,669 6,290,130110,820,030 7212,014 3,781,346] 8,809,922! 8,369,772 9,700,441 8,267,406 1256687] 1,889,064] 4,130,860! 4,196,076 2,130,292] 3,672,017 £826,784] 1,825,146] 5,081,372] 5,140,361 5,979,652 4,615,268 11,512,378 675.427(20,831,689] 1,632,633 35,368,529125,782,517 “110009 122,010115.240,611 674,281 .3,256,967|11,949,954 246,047) 7,538,439] 3,254,617 $103,533 3,036,952 °0,888,387 322/902 .623.814|13,443.857. 8,264,174 6337474 9,632,261 187,529} 3,428,781 9.364,987 0.963.400 10 160.504110,396,584 Missouri. ..... Minnesota. . . . lowa......... Nebraska. .... Kansas. ...... Oklahoma..... Arkansas. .... illinois. ...... [ndiana....... Ohio. ........ Wisconsin... .. Kentucky... Darecontare nf Taral Tavee Missouri. ... .. Minnesota. . . .. lowa.......... Nebraska. ..... Kansas. ....... Oklahoma...... Arkansas. ..... Illinois. .......' Indiana........! Ohio. ......... Wisconsin. .....] Kentucky..... 2.6 1.1 39.7 9.1 ‘4.8 70.0 4.9 <2.8 3 £A . oO 22.8 39.9 2-2 42.1 47.0 42.7 43.3 27.6 80.5 LR.7 54.5 °1.5 80.9 47.2 “2.3 19.6 28.3 22.0 1.9 +3,7 36.1 31.8 35.8 023 429 46.9 49.5 56.4 £0.7 45.5 | 404 "59 © I03 9.0 8.3 .%.0 47.4 26.0 18.2 | 27% ent ann bana 4 Ld 34.3 63.2 “1.8 16.7 29.6 36.6 36.2 19.0 27.7 41.¢ Per Canita Missouri. ... . Minnesota. . . . fowa......... Nebraska...... Kansas. ....... Oklahoma...... Arkansas. ..... Illinois. ....... Indiana........ Ohio. ......... Wisconsin. ..... Kentucky... 5) or 3.98 ~23 427 “09 285 Y 59 0.87 71 2.69 L16 1.98 1.67 4.95 20 1.56 27 4.96 4 1137 6.29 . 5 1 4.86 72 4.89 4.34 £19 4,65 4.83 4.56 5.26 1.87 1.87 0.94 2.82 2.84 3.28 2.96 443 + 488 4.95 4.72 4.22 0.53 0.49 0.48 4.84 2.94 7.41 7 20" 44 4, 4.13 7.95 1.46 59 .52 .50 5.77 1.69 3.36 A407 The Inheritance Tax Table 37 shows the receipts of the several states on account of inheritance taxes. Nebraska receives no revenues from this source, as the inheritance tax in that state is exclusively a source of local revenue. In Illinois the local governments receive amounts sufficient to cover administrative costs, and STATE AND LOCAL TAX REVENUES 117 TaBLE 37: InueriTANCE Tax Receipts oF Missourl AND OTHER STATES,! 1923-1928 Source: United States Bureau of the Census, Financial Statistics of States series Computed by National Industrial Conference Board 025 0 1926 | 1927 | 1928 #1,169,04°131,90L415181,937 169 $3,039,729 1,030,122 924.202] 1,181,807] 1,278,157 1,061,625 1,110,041 110,302] 1,214,883 401,885] 511.974 516071] 715.656 96,176! 293.494 159.952] 332,100 365.81) 291.770 221.521] 234194 5,078,351 6,805.826| 5,530,414] 9,053,873 952,772] 1,047,238] 1,108,947] 1.171.523 1,511,287| 2,099,253] 2,483,788] 2.523.769 2,943,340] 2,034,989] 2,256,127) 3,400,993 385.2731 639.441 666 IN? 731,598 Missouri, ..... Minnesota. . . . Iowa. ........ Kansas....... Oklahoma..... Arkansas...... Illinois. ....... indiana....... Ohio. ........ Wisconsin... .. Kentucky. .... Parcentacre Af Theat Tayee Missouri. ..... Minnesota. . . .. lowa.,., uensss Kansas........ Oklahoma...... Arkansas. ..... [Minois. ....... indiana........| Ohi0. «vow esas Wisconsin. . . ... Kentucky. ... ¢ 2) J Co 10.5 32 | 3.2 24 4.38 ) 10.7 10.4 ~ ~ «3 A.) 3.3 Co? 9 0 L = on LF ovmiin Missouri. ..... Minnesota. . .. lowa ......... Kansas........ Oklahoma... ... Arkansas. ..... lllinois. ....... Indiana........ Ohio. ......... Wisconsin... .... Kentucky. ..... 1 Nebraska is not included in this table. Leg 144 1,22 ' 04 +20 172 a1 0) I~ 4 237 0.46 0.28 N13 N16 n.95 N34 033 “72 47 45 28 07 12 176 0.35 039 LV 80 ~ yr 0.8 0.51 0.50 N,39 0.14 9.13 23 0.37 0.39 1.19 Nn no in Ohio the local governments receive a considerable proportion of the total receipts. The data in Table 37 for these states include only the state’s portion of the receipts, and on this basis they are comparable. Considering the period 1923 through 1928 as a whole, only Illinois and Wisconsin exceeded Missouri in the proportion of total state taxes derived from inheritance taxes. Missouri also ranked third on a per capita basis in the last three years {18 THE FISCAL PROBLEM IN MISSOURI of the period. In the earlier years Missouri ranked fourth or lower in per capita state receipts from this source. The Income Tax Table 38 shows the income tax receipts of Missouri, Oklahoma, Arkansas, and Wisconsin for the years 1923 through 1928. The other states of the group that has been selected for comparative purposes do not levy income taxes, although several are now considering this form of taxation. Arkansas collected an income tax in several years of the period. The law was declared unconstitutional, but a new one was enacted in 1929. The data for Wisconsin in Table 38 represent only the receipts that accrue to the state government and do not include the income tax receipts that revert to the local governments. Also, it should be pointed out that the relatively small amount shown for this state in 1928 is accounted for by a change in the data on which income tax payments are due. TasLE 38: Income Tax Receipts or Missouri, OkLa-HOMA, ARKANSAS, AND Wisconsin, 1923-1928 Source: United States Bureau of the Census, Financial Statistics of States series Computed by National Industrial Conference Board 192% Missouri. . .....,$2,867,727'." Oklahoma......| 301,965] 1&7 Arkansas. ..... vo ’ Wisconsin... ... 2,100,840 7 26 1927 1928 vem 394,029,959 $3,697,603 anal 362,142] 1,088,887 6.250.569] 8,695,482] 1,335,404 Percentace nf Tatra] Taxes Missouri. ...... 1n.2 Oklahoma...... 3.6 . Arkansas. ..... .. n Wisconsin. ..... 8.6 11.7 ~ J , 145 TT 129 10.8 1.8 1.9 4.9 | wr | we | % Per Capita Missouri. ......" )84 + p96 : $1.22 plas $1.03 Oklahoma......» 0.14 0.09 0.14 0.15 0.16 0.47 Arkansas...... a" s 0.02 0.08 .. .. .. Wisconsin. .... n 77 191 0.84 2.23 3.07 0.47 The Oklahoma income tax is a relatively unimportant source of state revenue, although there was a large percentage increase in 1928 as compared with previous years. This STATE AND LOCAL TAX REVENUES 119 state is one of comparatively few states levying income taxes in which a smaller proportion of total state taxes is derived from the income tax than in Missouri. In 1928, 4.99, of the state tax revenues of Oklahoma were obtained from this source, as compared with 10.89, in Missouri. Although only 3.89, of the total state taxes of Wisconsin for 1928 were obtained from the income tax, the yield in that year was not typical, for the reason mentioned above. For the previous year 23.99, of state taxes was obtained from this source. In the earlier years of the period for which data are included in Table 38, Missouri obtained a larger proportion of total state taxes from this source than did Wisconsin, but in 1926 and later years the opposite was true. The comparison between Missouri and Wisconsin would not be complete without considering the large amount of receipts from the income tax in the latter state that reverts to the localities. For example, in 1927 total income tax collections in Wisconsin amounted to almost $18.8 million, and in all other years the total receipts from this source were much larger than in Missouri. The fact that a large part of the receipts from the income tax in Wisconsin revert to the local governments must be kept in mind in making any comparisons between the two states. Per capita income tax receipts in Missouri reached a peak of $1.22 in 1926 and declined to $1.03 in 1928. In Oklahoma per capita receipts from this source up to and including 1927 did not amount to as much as $0.20 in any year, and in 1928 the per capita amount for this state was only $0.47. The state’s share of the income tax receipts in Wisconsin was equivalent to $3.07 in 1927, as contrasted with $0.77 for 1923. It is clear from the data in Table 38 that there has not been a decline in per capita income tax receipts in the other two ‘states comparable with the decline in Missouri since 1926. The Gasoline Tax The receipts from gasoline taxes in the several states for the period 1925 to 1928, inclusive, are shown in Table 39. As the Missouri gasoline tax did not go into effect until January 1, 1925, data are not included for 1923 and 1924. 120 THE FISCAL PROBLEM IN MISSOURI TasrLe 39: Gasorine Tax Receipts! or MIissOURI AND OTHER STATES, 1925-1928 Source: United States Bureau of the Census, Financial Statistics of States series Computed by National! Industrial Conference Board State MISSOUIT. «vo cvveneennnon. Minnesota. RR lowa...... Cees Nebraska. . vies Kansas. ........c..vvuunn Oklahoma. . I Arkansas. . . Cee linois............ ..... diana. . ius es vnmue srr ers OND. van eennnarsviasianis Wisconsin. ........ooven.. Kentucky. 1925 $4.148.278 433.471 2,635,839 2.796.741 6,633,075 178,137 779,812 2,560,731 1926 $5,892,341 $001,807 1,767,478 2,887,374 3,883,432 3,836,664 37340 461 8,641,302 5,478,209 4,860,416 3.475.816 Tarr $6,234,739 4,907,379 1,654,686 3,091,288 4,457,648 4,015,083 3.293.092 9,705,636 5,887,351 2475.14 {982.021 1928 $6,634,237 5.327.079 4.638.577 3,999,702 £924,419 5,449,113 4,089,859 6,295,751 10,949,805 15,472,000 6,281,699 £058.779 Percentage nf Total Taxes Missouri. . . . Minnesota. . . fowa...... Nebraska. . oo. vvvvvevene Kansas. ... Press Oklahoma... Seas Arkansas. .. . {llinois......... eae Indiana. .............o.onn OI, sm rs mu sng poms cevunn Wisconsin, ......coonvenn Kentucky. 15.3 6.0 18.0 19.9 22.1 2.8 29.6 0.6 15.8 16.1 28 15.3 15.1 1A 17 = an 11! €u 24.3 21.9 20.1 20.7 6.0 26.8 22.2 20.7 19.7 4 15.7 23.3 24.9 24.8 26.3 29 33.2 = Per Canita Missourt. . . . Minnesota. ... . ... . [owa........ EE EEE Nebraska. ...... ..... oc... Kansas. .v..ooevvvnneonenns Oklahoma........ A Arkansas. ...... - -...... [llinois, ..... cee Indiana. ................. DI: wim ¢ wis 5 5 wma vo 5 5 5 Wisconsin, ............ Kentucky... . . 1 Does not include receipts which revert to local governments Cu. x 1.89 2.94 2.A5 2.36 2.23 0.86 2.46 "40 2.19 Nr In 1928 the receipts in Missouri from this source were exceeded only by Indiana and Ohio, and in 1927, only by Indiana. The relatively large receipts in Missouri as compared with other states are not attributable to a high rate of tax. The data as given include only the receipts of the STATE AND LOCAL TAX REVENUES 121 state governments, and in a number of cases the local governments receive a portion of the collections from the gasoline tax on a basis other than state aid. In states in which a part of the tax automatically reverts to the local governments or the receipts are distributed to the local governments on a basis that does not constitute state aid, the total receipts from the gasoline tax may be much larger than in Missouri, although the receipts of the state government are not.! In 1928 Indiana obtained more than 339, of total state taxes from the gasoline tax, a larger proportion than that of any other state in the group. The small proportion for Illinois is accounted for by the fact that the tax was not in effect during the entire year. Of the other states, Minnesota, Iowa, and Wisconsin obtained from this source a smaller proportion of total state tax revenues than Missouri. Per capita gasoline tax receipts in Missouri amounted to $1.85 in 1928, a smaller amount than in any other state in which the tax was in effect during the entire year. In the preceding year Iowa and Ohio showed smaller per capita collections than Missouri. In both cases a change in the rate of tax accounted for the considerable difference between 1927 and 1928. Motor Vehicle Licenses The receipts of Missouri and other states from motor vehicle licenses are shown in Table 40. This table shows that in 1928 Missouri ranked fifth in amount of receipts’ from motor vehicle licenses and third in the proportion of total state tax revenue obtained from this source. Only Iowa and Wisconsin obtained in that year a larger proportion of total state revenue from this source than Missouri. Iowa ranked first in the proportion of total revenue obtained from motor vehicle licenses in all of the years for which data are presented. In two years, 1925 and 1926, Missouri ranked second to that state, while in 1923, 1924, and 1927 the rank of Missouri was third, as in 1928. Per capita receipts in Missouri from this source amounted LA table showing the allocation of the receipts from gasoline taxes in all of the states in the United States is presented in Appendix A, p. 346. 2 It is, of course, understood that the analysis in this section is based upon state receipts only. 122 THE FISCAL PROBLEM IN MISSOURI TaBLe 40: Motor Vemicte License Tax Receipts! oF Missouri AND OTHER STATES, 1923-1928 Source: United States Bureau of the Census, Financial Statistics of States series Computed by National Industrial Conference Board 1923 ' 1924 © 19s 1926 1 197 | ioe 3985 TL3184,456,278187,183 761 $7,809,2811°2,102,717/$8,615,033 6,226,607] 7,555,751 8,205,289(10,185,773-0,186,469/10,069,292 7,773,037 9.883,35¢ 0.705.546 9,789,186 9,889,747!°0,363,837 126,660 125,075 141.406 1,060,564 228.412 1,306,419 201,177 217,597 244,872" 2484276 1,690,395 1,838,800 373,036 380,657 466,954 1,119,345 1,013,489 2,375,000 427,138 2,248,822; 2,893,163] 3,581,589 740,758 3,418,780 9,104,567 1,144,449 2.373.565 °,416,022 ,597,095 5,049,243 2,741,303, 5,012,179! 3377510] 4,993,321 017,223 4,178,884 048998] 5.676.067 6,971,754 £102,387 464.4001 6,067,544 5,821,645! £,564,994' 042,00 7.294598 740,963 10,631,107 2.657,620 2,194,287 693,1650 3.990260 IAT ATS 4.625954 Percentace of Total Taxes Missourt, . ..... Minnesota. .... [owa.......... Nebraska. ..... Kansas. ....... Oklahoma...... \rkansas...... [Hinois........ ndiana........" Dhio.......... Wisconsin. . .... Kentucky... rN 4 Y 2:0 38.5 2.0 2.2 £49) 3.2 20.4 20.6 26.3 25.5 11.2 11.2 15.4 22.0 196 1 21.0 nt Nn 100 J) , 0 3.0 17 7 6 3a. 0 £9 0.6 19.6 8.4 Co 11 5.5 2° 22.2 22.4 21.9 19.9 20.4 21.3 15.5 12.3 12.7 “4.7 14.9 10.6 23.0 26.8 30.6 19 189 12 § 3 23.4 35.0 7.6 aimee, Missouri. . Minnesota. . . . lowa.......... Nebraska. ..... Kansas........ Oklahoma...... Arkansas....... {llinois, ....... Indiana........ Ohio. ......... Wisconsin. .... Kentucky... .. / 3 4.07 0 (9 0.12 nyo ng 4 7} alle 24 3.99 ot ~13 1 4, 1 9 5% v5 a8 °3 1 / £06 4.04 0.91 2.00 1.32 2.05 20 1.28 ORE 7 we EA 5.98 4.22 0.96 2.7 10, 1.27 2.04 1.32 0.94 3.71 170 1 Does not include receipts which revert to local governments. to $2.40 in 1928, an amount that was exceeded only by Minnesota, Iowa, and Wisconsin. Considering the period as a whole, it is evident that state receipts from motor vehicle licenses in Missouri are relatively larger as compared with those in other states than are the receipts from the gasoline tax. CHAPTER V TAX ADMINISTRATION 7 Uy \HE most important feature of any tax system is the 1 administration. A particular tax system may be regarded as archaic by students of taxation, but, if the administrative machinery is efficient and if a tradition of effectiveness in administration has been established, the system may yield generally favorable results. On the other hand, regardless of the merits that a system of taxation may possess, if there are no adequate administrative provisions or if a tradition of laxity in administration has grown up, the results cannot be satisfactory. In the case of Missouri, it seems to be generally recognized that the administrative system 1s not satisfactory. The resident of Missouri who has any considerable knowledge of taxation in his state readily admits that the results obtained leave much to be desired. Even administrative officials have been known to criticise freely certain aspects of the system of administration and the resulting inequalities! When those in authority criticise the administrative system and taxpayers freely admit that the administrative procedure is inefficient, there is no ground-work on which to build a sound tradition. That such a tradition has not been established is most unfortunate, and it is important to consider the factors that have militated against its establishment. It is only by considering these factors that suitable proposals for changes can be formulated for the purpose of developing an effective system of administration, and it is only through such a system that the Missouri tax authorities can hope to establish a sound tradition for stimulating effectiveness in the tax system as a whole. While the administration of the laws in general can be improved greatly, the situation with respect to the general property tax is particularly serious. Accordingly, this tax will be given first consideration. 1 See particularly First Biennial Report of the State Tax Commission, 1917-1918. 193 124 THE FISCAL PROBLEM IN MISSOURI ADMINISTRATION OF THE GENERAL ProPERTY TAX Effective administration of the general property tax is of fundamental importance for the effective and equitable working of the tax system as a whole. This tax accounts for approximately three fourths of the total revenue from state and local taxes. It is predominant in local governmental finance and continues to be an important source of state revenue. It is highly important, therefore, that this tax should be administered in such a manner that the property owners within each taxing jurisdiction contribute to the cost of government according to the taxable property that they own. Uniformity within the taxing jurisdiction is of rime importance, whether the jurisdiction be the smallest school or other special district or the state government. Since the state government levies a general property tax, there is an implied uniformity in valuation and assessment procedure throughout the state. It is only through such uniformity that the state receipts from the general property tax can be obtained from the several local divisions of the state without giving cause for complaint that any county or other local unit is contributing either more or less than its fair share toward the maintenance of state government. It is highly desirable also that the individual taxpayer should not feel that he is paying more than his share or less than he should, irrespective of how large or how small the geographic extent of the taxing jurisdiction may be. Under the existing conditions it is difficult to see how the taxpayers can regard the taxes that they pay as fair and equitable. This statement is particularly applicable to the state general property tax, but it has other applications. which will be considered later. Administrative Agencies The administrative agencies include the county and other local assessors, the county boards of equalization, the State Tax Commission, and the State Board of Equalization. The original assessments, as made by the local assessors, furnish the basis for any changes made later by boards of review. TAX ADMINISTRATION 125 The discussion will therefore begin with the local assessment procedure and conclude with the State Board of Equalization. There is a county assessor in each county of the state, except in those counties that have the township form of organization. In the latter counties! each township has its own assessor, the township clerk serving in this capacity. St. Louis and cities of the first class have their own local valuations, which are made by the city assessor.? In cities of the second class, the commissioner of the department of revenue is ex-officio assessor? and in those of the third and fourth classes property is assessed jointly by the city and county assessors.* An annual assessment is required. The county assessors are elected® for a four-year term, and the township clerks, who are ex-officio township assessors, are elected for a twoyear term. The statutes’ provide that assessors are to be compensated on the basis of the number of assessment lists prepared. The maximum is $0.35 per name in counties having a population of not more than 30,000, and the minimum, which is applicable in counties having a population of more than 60,000, is $0.25 per name. A small additional fee is allowed for preparing both real and personal property assessment lists. The cost of the assessments is borne equally by the state and the county. There is a county board of equalization in each county. In counties not under the township form of organization, the board consists of the judges of the county court, the county assessor, and the county clerk. The latter official is secretary of the board, but is not permitted a vote.* In counties that have the township form of organization, the sheriff is a member of the board, there being no county assessor insuch counties. Thecounty board assessesomitted property, hears complaints, and determines appeals from the assessor’s { Twenty-four counties have the township form of organization. 2R. S. 1919, Section 7646. 3 R. S. 1919, Section 8073. 1R. S. 1919, Sections 8266 and 8445. 5R. S. 1919, Section 12759. This section does not apply to St. Louis City. 8 R. S. 1919, Section 13196. 7 Session Laws, 1929, pp. 415 ff. 2 R. S. 1919, Section 12820. 126 THE FISCAL PROBLEM IN MISSOURI valuations.! In no instance, however, may it reduce the valuation of the real and personal property of the county below the value as fixed by the State Board of Equalization. Cities of the first class have their own boards of appeal. The State Tax Commission consists of three members, appointed by the Governor for a term of six years. The Commission has been in existence since 1917. Although the Commission has numerous other duties, only those incidental to the administration of the general property tax will be considered here. The Commission adjusts and equalizes the value of real and personal property among the several counties of the state. It does not, however, have final authority in the equalization process. After examining the county valuation data, which are reported to it, the Commission may make such changes as it believes to be desirable, but before its recommendations become effective they must be approved by the State Board of Equalization. So far as the equalization for the general property tax is concerned, the Commission is, therefore, without definite authority except to make recommendations to the State Board of Equalization. The State Tax Commission is empowered to order reassessments of individual properties and assessment of omitted property. It has no power to order reassessment of all the property in a county. If it had been given such authority at the time the State Tax Commission Act was passed, doubtless much could have been done to remedy certain inequalities. However, any changes that might have been recommended by the Commission would have required approval of the State Board of Equalization. The State Tax Commission has the power to assess railroads, railroad cars, rolling stock, street railways, electric light and transmission companies, bridge companies, pipe lines, telephone and telegraph companies, and other similar public utilities. Strictly local property of railroads and other utilities is assessed by the local assessors. The valuations of properties as made by the State Tax Commission are sub-In counties having the township form of organization, the county board also equalizes valuations among the townships. TAX ADMINISTRATION ject to approval of, or revision by, the State Board of Equalization. The State Board of Equalization is an ex-officio board, consisting of the Governor, State Auditor, State Treasurer, Secretary of State, and Attorney General. The existence of this board rests on constitutional authority.! The constitution of 1865 contained no provision for such a board, but the constitution of 1875 definitely provided for the establishment of the State Board of Equalization at the head of the tax system. It is the duty of the board to equalize the value of real and personal property among the several counties, and it has the power to equalize the value of each class of property separately. 127 Valuation of Property for Purpose of Taxation Value for taxation purposes has been defined as that sum which a willing buyer would agree to give a willing seller, the buyer not being obliged to buy or the seller obliged to sell. The assessors in theory are supposed to consider all factors that influence the value of a given property, and the assessment as made presumably represents the true value in money of that property, which is the legal standard for taxation purposes. Lo appraise carefully all the factors that influence the value of the several forms of property owned by a single farmer would represent a tremendous task. It is clearly an impossibility for the local assessors to consider all of the factors, for some of them are world-wide in their ramifications. Considering the many aspects of the problem, it would seem that value for taxation purposes in Missouri must depend largely on the judgment of the local assessors. It is inevitable that the efforts of local assessors, however intelligent and experienced, to value the numerous forms of property subject to taxation should result in many inequalities. The failure to achieve uniformity in assessments must be regarded as excusable under the present conditions. The most that can be hoped for is to keep the variations in the valuations of the same form of property at a minimum and the valuations of the several forms of property on bases so 1 Constitution, Article X, Section 18. 128 THE FISCAL PROBLEM IN MISSOURI nearly comparable that they will not show glaring inequalities. Although true value in money is the legal standard for valuation in Missouri, it is a known fact that only in rare instances is property other than certain intangibles assessed at its true value. The average piece of real property in the state is probably assessed at not more than 55%, of true or full value. Other forms of tangible property are also valued on a basis much lower than the legal standard. On the whole, the legal standard has no real application, except possibly in the assessment of bank stock, and in practice the assessment procedure represents an attempt by the assessor to establish a standard of value at some level considerably below the legal standard. Even if statutory provision should be made for a fractional assessment of 50% or 60%, it does not follow that property would be assessed at the required legal standard. To lower the legal standard does not necessarily solve the problem. This seems to be demonstrated by the experience of Iowa with fractional assessment. “If we may take the experience of the state of Iowa, which probably has permitted fractional assessment longer than any other state, as conclusive, nothing can be hoped for from this device. For the actual assessment is probably about one fourth or one third of the required assessment, which in turn is only 25 per cent of the actual value. In any case, all the inducements for undervaluation remain. It might even be argued that the lower valuation serves to conceal differences in the percentages at which different properties are actually assessed.” The low actual standard of valuation as compared with the legal standard in Missouri may probably be attributed to three principal reasons. In the first place, assessment at a figure lower than the true value tends to facilitate acceptance of the assessment as legal by the taxpayer. Furthermore, the assessment at a fraction of the true value tends to conceal differences in the ratios of assessed value to true value. In other words, a fractional assessment in practice will not result so readilv in accusations of inequalities. and assessors ! Jensen, J. P., The General Property Tax, 1926, p. 87. This work was prepared for a doctor’s thesis at the University of Chicago. TAX ADMINISTRATION 129 naturally desire to reduce friction to a minimum. Finally, the state property tax is a factor, in that a relatively low valuation in a particular county means a proportionately smaller contribution to the state. Valuations for the General Property Tax The data that comprise Tables 41, 42, and 43 represent the valuations! as approved by the State Board of Equalization, with the exception of the valuations for the merchants’ and manufacturers’ tax, which are not subject to approval by the Board. Table 41 is a summary table and shows the total property valuations for the years 1917 through 1929 distributed among the principal classes of property, and in Chart 4 the total valuations for taxes of 1917, 1921,1925, and 1929 distributed among the principal categories of property are shown graphically. The total valuation for property taxes, including the private car tax, amounted to $4.9 billion for taxes of 1929. Of this amount, 729, represented the value of real estate—a larger proportion than in any other year of the period. Personal property accounted for approximately 12.8%, of the total; public utility valuations, for 10%; and merchants’ and manufacturers’ valuations, for a little more than 59%. Conditions during the period for which data are given were very troublesome for administrators of the general property tax. The factors influencing values changed with unusual rapidity, particularly during the first half of the period. From 1917 through 1921 assessors had to confront not only rapid changes in real values but also rapid variations in the common denominator of value, the dollar. The fluctuations in the purchasing power of the dollar tended to complicate the attempts of the assessors to secure uniformity. In more recent years farm values have declined and have become a special problem in the assessment process. In valuing property for taxes of 1921 a concerted effort was made to raise valuations to a level nearer actual value, The increase in total valuation amounted to approximately 1 The valuations as approved by the State Board of Equalization are final. However, before computing taxes payable the county clerks make certain corrections occasioned by duplicate assessments and other errors in the assessment process, ~ 130 THE FISCAL PROBLEM IN MISSOURI 70%. After 1921 the trend was downward for several years and then upward until 1929, taxes for which were computed on a base approximately as large as for taxes of 1921. TaBLe 41: Assessep VALUATIONS FOR THE GENERAL ProrerTY TaX,! 1917-1929 Source: Official State Reports, Computed by National Industrial Conference Board Taxes | Real Estate | of Private | Merchants Car and Companies! Manufacturers Total 1917 1918 1919 1920 1921 22 23 224 ‘925 ‘926 927 1928 1929 1,359,827,69° 17471,696,024 1,714,297,676 1,872,130,111 3,348,437,982 3,212,035,59¢ 3,251,110,270 3,285,553,856 3,317,516,520 3,421,871,228 3/498,057,528 533,622,887 272’ 034’ 700 390,471,69* 426,368,552 556,826,602 599,615,935 920,527,673 766,311,004 718,509,096 735,385,595 674,972,463 678,702,061 656,846,072 648,373,612 532.039.0372 200,652,44( 203,579,733 222,429,456 221,519,398 377,212,604 383,263,233 381,472,960 394,666,522 157,319,009 475,720,765 184,726,926 186,079,876 193.707 739 $800,94° ~018.73( 166,674 302,017 211,82 ,237.17! 880,72¢ $575.92¢ 898.126 1151.423 426,107. 2392,600 534 R&A "10,207,94' 186,505,863 205,902,924 225,508,897 346,135,019 252,291,662 240,123,094 249,477,416 251,823,847 253.818.457 237,680,185 237,585,681 249 758 00 2,061,960,726 2,289,168,900 2,700,623.332 2,920,076,358 £,993,525,106 4,616,138,672 1,593,096,149 14,668,659,313 4,705,529,965 4,835,263,934 4,882,736,318 4911,054,652 1'933°074.349 Percentace Distribution 191 ‘918 919 920 921 22 923 724 25 226 27 28 ana 4 67. 69.5 70.0 mn TN 20.6 20.5 SA “4 2 L Including private car tax. 2 Data for first four years from Biennial Reports of the State Auditor. Data for 1921 and 1922 from Biennial Report of the State Tax Commission. Data for all later years from Journals of the State Board of Equalization. 3 Includes locally assessed property amounting to $4,598,465. 1] .ess than one tenth of one per cent. Table 42 shows the valuations of the several classes of property comprising real estate, personal property, and public utilities, and Table 43 gives the percentage distribution of real estate between land and town lots and the percentage distribution of personal property among the several classes. The total valuation of real estate as assessed for TAX ADMINISTRATION 131 CHART 4: TortaL VaLuAaTIONS FOR THE GENERAL PRrop-ERTY Tax DistriBuTED BY TyPES oF ProPERTY, 1917, 1921, 1925, ano 1929 Per Cent of Total 7/// CH BE Town LoTs {7/7} PersONAL PROPERTY [TTT] PUBLIC UTILITIESY [MERCHANTS AND MANUFACTURERS 1917 1925 921% 1929 ‘ - 1 Includes private car companies. taxes of 1929 amounted to more than $3.5 billion. Of this amount, town lots accounted for slightly more than 609%, and lands, for almost 409. This distribution of real estate was approximately the same as in the case of taxes for the 132 THE FISCAL PROBLEM IN MISSOURI TaBLE 42: AssesseD VALUATIONS OF REAL Estate, PERSONAL 1917-Source: Journals of the State , ir | wes | 119 | 120 | var | 122 Real Lands... ........| $521,949,271] $558,532,340] $680,226,723) $733,711,593191,767,568,718|31,642,329,456 Town lots... .....| 837,878,428 oie Si 1,138,418,518 Ll 1,569,706,142 Total real estate. |1,359,827,699(1,471,696,024|1,714,297,676/1,872,130,111} 3,348,437,983 3,212,035,598| Persona’ 76,095,6 410,795 18,609,310 53,437,942 1,936,004 12,567,232 274,497 48,745,055) 114,131,440 118,620,692 119,990,698] 157.477.8511 227,070,835" 67,196,765) 69,795,338] 85,344,469 96,184,444] 173,815,990] 169,358,298’ 14,450,225) 16,177,078] 17,825,111] 17,030,236] 17,796,035 18,823,492 101,458,958] 124,199,134] 155,136,853 180,014,2230 308,726,917 236,926,939! 390,471,60¢! arg aan en omen omar goel 900 527.673) 766,311,004 Public Utilities 140,250,397 141,965,770 155,697,454 155,163,327 270,520,646] 275,459,365 39,010,630] 39,404,475] 42,700,343 42,371,502] 64,579,692 67,306,074 5,673,500] 5,511,000] 6,062,1000 6,055,500] 10,597,125] 6,912,785 12,768,907] 13,504,880 14,589,603] 14,473,397] 25,449,255 21,731,814 29490111 3.193.599 3.379.956] 3.455.672] 6.065.886 5.853.195] Steam and tern.r. railways. ....... Street and electric railways........ Bridge companies. Telephone companies. ........ Telegraph companies. ........ Oil pipe line com-Danis. ........ Electric light, power and transmission companies. ..... Total public ual tes, cc vvnuans Publicutilities prop erty assessed lo-Callys « vena es Grand total taxable] } wealth? ....... 1,950,951,83412.101,644,309> 493,552.7341 593,265,444] 4,646,178,260} 4,361,609,83¢ 1 Public utility valuations differ to some extent from those in source, as a result of adjustments made. t Valuations for this year adjusted as a result of correspondence with the Secretary of the State Tax Com wealth being reduced by less than $1 million from the total given in the 1928 Journal. TAX ADMINISTRATION 133 Property, AND Public UriLities BY CLasses oF ProPERrTY, 1929 Board of Equalization 1925 | 1924 195 | 192 wn | 192 | 1929 Estate $1,619,856,437|51,547,635,287|81,523,019,989[%1,511,740,046|81,490,458,116/51,463,686,775 $1,416,649,795 1,631,253,833 1,737,918,569| 1,794,496,531| 1,910,131,182 LAA hoists 2,136,384,908 3,251,110,270} 3,285,553,856| 3,317,516,5200 3,421,871,228| 3,498,057,528| 3,533,622,883 | 3,553,034,703 Property ~1968,15 18,r * a; “746 ey ’ a. 12,4 348 524 49,790 12,17(,64* 11,216,101 43 7177,47¢ 49,977,285 © n248 3,440,440 11,620,028 11,084,391 301.414 197.745 89,649,737 89,079,937 86,402,15. 83,138,585 88,470,100 10,687,788) 11,511,603 10,986,176] 12,146,804 11,143,946 79,555,864 79,219,277 78,925,729 77,335,547 75,665,111 199,476,312} 195,187,347) 188,878,801 167,991,176] 158,891,276 149,030,718 - 97,724] 105,636, 59,162 64,087 66,697 . 69,772,508 84,962,436 88,557,856 88,312,342 87,085,874 161,156,145! 158,646,718 150,800,756] 145,142,630] 138,295,019] 128,705,524 107,988,991 21,398,471 27,617,138 9,096,909 3,177,052 2,451,990 1,109,003 120,725 222,490,174] 251,614,418 70,123,830 76,624,693 83,176,814 98,670,451 112,466,871 | 71 ,509,096| 735,37 674,972,467 678 ,7C 02,061 | 656,846,072 648,373.47 632,039,033 Centrally Assessed 272,004,970 65,968,884 6,969,964 30,145,643 6.383.499 283,441,493 68,233,100" 7,130,075 35,172,210 6,582,333 16.237.720 286,200,019! 68,431,246 7,237,501 37,558,875 6,566,922 16.173.780 287,098,395] 68,087,521] 7,246,497 sosisa1d 6,576,815 16.623.252) 285,235,706 | 284,834,070 63,450,489 61,802,001 6,727,527 6,727,527 41,820,631 | 43,042,366 6,590,623! 6,646,306 16,578.84 18,316,618 40,522.07 53,462,420 58,779,200 65,676,054 157.219.000] 475.720.765] 484.726,926] 486,079.876 1 72,338,850 493.707.738 381 472,960 390.068.057! 4,508,46°) . I 4,351,092,326) 4,415,605,973| 4.449.807.9972] 4.576 "405" 4,639,630 2¢' 4,668,076,371 | 4,678,781,474 mission and State Board of Equalization. Most of the adjustments were small, the grand total taxable 3 Exclusive of private car companies and merchants and manufacturers. a 3 I TaBLE 43: PERCENTAGE DisTriBUTION oF AssessED VALUATION oF Rear Estate anp PersonaL ProPERTY, BY CLASSES OF PROPERTY, 1917-1929 Computed by National Industrial Conference Board = Taxes of 1917 | 1918 | 1919 | 1920 | 1921 | 1922 | 199% | 1924 | 1925 | 1926 | 1927 | 1928 | 1929 ReaL Estate 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 TT PersoNalr PROPERTY Lands. ........ Town lots. ... Total real estate. .. . Horses. .......... Asses and jennets............ Mules. ....ooiviiiiniinnnnns Cattle. .......... 3% 8 SHEE SHEED. «ci vei ai aa Hogs. ..ooonssmvuns ; All other livestock. . . Total livestock. . Farm machinery. ................ Household property. ............. Money, notes, bonds, ete.. ......... Bee colonies. ........-Motor vehicles. ..........c.vuvn... Banking corporations. ............. Corporate companies ............. All other personal property. ........ Total personal property......... 1 Jess than one tenth of one per cent. {2 7 24 £0 9.6 0.3 0.3 14 14 1} 1 o4 10.8 0.8 21 ni tz 0.1 «ol 34 2.6 105] 86 09] 05 29" 19 on Mm cif 2 3 Zp 9 010) Tee © Pa 231 on w2| 21 20, 19 701 671 65| 68 67| 67 67 03 031 03] 03! 04] 04] 04 Le | 21 18] 15 16| 18! 18 oa ® 1 oo! ® ¢ 1c 7.9 0.5 1.8 (1) ) 27.7 16" 253 24.0 17 GQ 14 Q 14.5 133 13.3 13.1 13.1 12.8 140 28.1 | 28.3 ld 27.8 172] 164 153] 161 189 37] 38| 32| 28, 19 2601 2911 2791 300' 335 100.0 | 100.0 * 100.0 30.4 | 29.6 | 22.1 2.5 10.9 29.1 22.4 | 3.0 210 27.1 21.6 3.8 249 "| ted 1.8] 107) 120 289] 27.8 | 256 | 0 -) o . 103 | 129] 13.5 23! ap 14 n 10.4 C17 17 12.0 23.6 2) 13.8 17.1 *) 17.8 100.0 + 100.0 “on™ TON N “Nn 1000" 100.0 100.0 TAX ADMINISTRATION 135 years 1917 to 1920, inclusive. For taxes of 1921 lands represented almost 53% of the total real estate valuation. After 1921 there was a gradual decline in the proportion of the total attributable to lands, with the result that there was a 609, and 40%, distribution of total real estate between town lots and lands for taxes of 1929. The question might be raised whether the increase in the valuation of lands that was made in the assessments for taxes of 1921 was not excessive. In that year the valuation of lands was increased from about $734 million to slightly more than $1,767 million, or more than 1409, while the valuation of town lots was raised from approximately $1,138 million to $1,581 million, or about 40%. Real estate assessments for taxes of 1921 were made as of June 1, 1920, when farm values were at a peak. Even after making allowance for this fact, it still appears questionable whether the much larger increase in the valuation of lands, as compared with other real estate and with property in general, was entirely justified. The total valuation of personal property reached a peak of $920 million for taxes of 1921, and, unlike real estate, the level of 1921 has not since been attained. For taxes of 1929 personal property valuations amounted to only $632 million, the smallest for any year since 1921. Of the total, approximately $88.5 million, or 14%, represented the value of livestock as assessed for tax purposes. The most important personal property classification, judged on the basis of valuation, is that of money, notes, bonds, etc., which showed a total valuation of $149 million for taxes of 1929, or 23.6% of all personal property. Bank stock, the other important form of intangible property, was assessed at about $108 million, or 13.89, of the total personal property valuation. The two groups, money, notes, bonds, etc., and bank stock accounted for 40.7%, of the total valuation of personal property, but for only 5.2% of the total valuation of all property as shown in Table 41. 1 “Intangible property” or “intangibles” as used in this study refers to those forms of property which are representative in nature. The two important classifications included under this heading are bank stock and money, notes, bonds, etc. Tangible property, on the other hand, includes real estate, livestock, motor vehicles, farm machinery, etc. 136 THE FISCAL PROBLEM IN MISSOURI While the decline since 1921 in the valuation of livestock was relatively greater than for the two groups of intangibles, the decline in the latter is more significant. Large amounts of personal property legally assessable as money, notes, bonds, etc., are escaping taxation under the general property tax, and the decline will undoubtedly continue if the present system of taxing these forms of property is followed. This subject will be treated fully in a later section. In considering the classification, all other personal property, a degree of caution is necessary. For taxes of 1925 various additional classifications were added. The result was a large decline in the total for all other personal property, since certain property that was assessed as a separate class for taxes of 1925 had been included previously in all other personal property. Centrally assessed property of railroads and other public utilities was valued at $493.7 million for taxes of 1929. The trend in public utility valuations has been definitely upward since 1917. Railroads, including steam and terminal, account for the largest part of the public utility valuations. The Equalization Process The valuation data for real, personal, and public utility property that were considered in the previous section do not represent the valuations of real and personal property as made by the local assessors or the valuations of public utility property as made by the State Tax Commission. The data represent the valuations as equalized by the State Board of Equalization. Before the valuations of real and personal property made by the local officials are submitted to the State Board of Equalization, they are first equalized by the State Tax Commission. The valuations of public utility properties, which are assessed by the State Tax Commission, are also submitted to the State Board of Equalization. A consideration of the equalization process therefore involves a comparison of the valuations of real and personal property as submitted to the State Tax Commission, as equalized by that Commission, and as finally equalized by the State Board of Equalization. In the case of centrally assessed public utility property only the valuations as made by the State TAX ADMINISTRATION 137 Tax Commission and as equalized by the State Board of Equalization need be considered. For the purpose of analysis of the equalization process the most recent tax year, 1928, for which complete data are available in published form was chosen. The summary data in Table 44 indicate the relatively slight effect of the equalization by the State Tax Commission and the State Board of Equalization on the real and personal property valuations for the state. The recommendations of the State Tax Commission represented an increase of 1.29 in the total valuation of real and personal property for taxes of 1928. As finally equalized by the State Board of Equalization, the total valuation was only approximately 0.019, less than that recommended by the Commission. The net changes made by the Commission amounted to an increase of 1.19% in the value of real estate and 1.5%, in the value of personal property. The State Board of Equalization increased the personal property valuation by 0.1%, but reduced the real estate valuation by approximately 0.03%. The principal changes recommended by the State Tax Commission in valuations for taxes of 1928 represented an increase of 1.99, in the valuation of lands, of 0.6% in the valuation of town lots, of 1.19, in the valuation of mules, and of 7.49, in the valuation of bank stock. The other changes recommended were relatively small on a percentage basis, and, as is evident from Table 44, the valuations for a number of classifications were accepted without change. The principal changes made by the State Board of Equalization were in the valuations of town lots, bank stock, and all other personal property. The valuation of town lots was reduced by about $1.7 million from the State Tax Commission’s recommendation, or a decrease of 0.1%. The bank stock valuation was reduced from the Commission’s recommendation by an amount equal to 4.3%. All other personal property, for which the Commission recommended no change, was increased from $92 million to almost $98.7 million, or 7.2%. The data in Table 44 indicate the relatively slight effect on total property valuations of the changes made during the i Computed on Tax Commission recommendations as a base. 138 THE FISCAL PROBLEM IN MISSOURI TasiLeE 44: Summary or CuHances Mabe DURING THE EquavrizatioN Process IN THE VALUATIONS OF REAL EstaTE AND PERsoNAL ProrerTY, BY CLASSES OF ProprerTY, TAXES OF 1928 Source: Biennial Report of the State Tax Commission, 1927-1928, and Journal of State Board of Equalization, 19281 Increase or Decrease {—) in Valuations Per Cent Valuations as fixed by Assessors as of June, 1927 Valuations Recommended by Tax Commission Valuations as Fixed by State Board of Equal ization Tax Commis- over Assessor's Board of Equalization over Tax Come mission Counties Counties in which valuation was changed........... $494,296,000| $521,465,852| $521,942,084| 5.5 0.1 Counties in which valuation was not changed. ...... 941,734,691 941,744,691 941,744,691 . ve All counties. . .... 1436,040,69111.463,210,54311,463,686,775| :.9' (8) Lands Counties in which —— was changed. .......... Counties in which valuation was not changed........ All counties. . . Town Lots 128,569,108] Hos 138,945,839) 931) —1.2 I oo 1.059.659.377|2,071,624.98212,069,936,108] 0.6 | —0.1 Horses? AY couniles: .. 12930246) 12,930246] 12,930,246] .. | .. Mules 1.353.515] 1,353,515) 10.9 10,817,130 10,817,130 171706450 12170,645 Asses and jennets? All counties. .... 2 65,524! 65,524] 65524] .. | .. Counties in which valuation was changed. .......... Counties in which valuation was not changed........ All counties. - ; 550,882] 550,882) 23.9 | i 42,576,59| 42,576.59 .. | .. 43127479" 431274781 0.2] .. 1 Minor changes in data were made as a result of correspondence with the Secretary of the State Tax Commission and the State Board of Equalization. 2 The valuation of this item as determined by the assessors was accepted without change by the Tax Commission and the Board of Equalization. 8 Less than one tenth of one per cent. Cattle 444.780 42,576,596 A 3.01.37 TAX ADMINISTRATION 139 TasLe 44: Summary oF Cuances Mabe DuriNe THE Equavrization Process IN THE VALUATIONS OF REeaL EsTATE AND PERsoNAL PropErTY, BY CLASSES OF ProperTY, TAXES OF 1928 (continued) Source: Biennial Report of the State Tax Commission, 1927-1928," and Journal of State Board of Equalization, 19281 Increase or Decrease (—) in Valuations Per Cent Counties Valuations as fixed by Assessors as of June, 1927 Valuations Recommended by Tax Commission Valuations as Fixed by State Board of Equal ization Board Tax of Com- Equalmis- ization sion over over | Tax Asses-: Comsor’s mis-ION All counties. . . Sheep? 2,923,248) 2923248] 2,923,248] .. | .. Hogs? co... 11,620,028] 11,620,028] 11,620,028) .. | .. All Other Livestock? 301,414] 301,414] 301.414 oo All counties. . All counties. . Farm Machinery? 12,146,804) 12,146,804] 12.146.804] .. | .. All counties. . Household Property? 77,335.542) 77,335,542] 77,335,542) .. | .._ All counties. All counties. .... -. Money, Notes, Bonds, etc.? ...| 158,891276] 158.891,276] 158,891,276] .. | .. Counties in which valuation] was changed. ..........| Counties in which valuation was not changed....... Al count-~ Bee Colonies 451 sil 63,626 63,626! G4 77 HA YT™ a1] 63,626! £4. NR" | 22 3} Counties in which valuation! was changed. .......... Counties in which valuation! was not changed... All counties. . Motor Vehicles 1,034,809] 1,234,803] Cems gy 97,278,257 88,313,062 88,513,067 1 1,034,09¢ oP —16.3 S122, 0.2) —0.2 1 Minor changes in data were made as a result of i with the Secretary of the State Tax Commission and the State Board of Equalization. 2 The valuation of this item as determined by the assessors was accepted without change by the Tax Commission and the Board of Equalization. } Less than one tenth of one per cent. 140 THE FISCAL PROBLEM IN MISSOURI TaBLE 44: Summary or CuHaNces Mabe During THE EquaLrizaTion Process IN THE VALUATIONS oF REAL Estate AND PErsonaL ProPERTY, BY CLASSES OF Property, TAXES oF 1928 (continued) Source: Biennial Report of the State Tax Commission, 1927-1928! and Journal of State Board of Equalization, 1928! Increase or Decrease (—) in Valuations Per Cent Board of Equalization over Tax Coma mission Counties Valuations as fixed by Assessors as of June, 1927 Valuations Recommended by Tax Commission Valuations as Fixed by State Board ia ization Counties in which valuation was changed. .......... Counties in which valuation was not changed........ All counties. . Bank Stock 104,717,760) 114,008,923] 108,237,519] 8.9 | —5.1 20,468,001 20,468,005] 20,468,005] .. .. 125,185.,7651 134,476,928" 128,705.524! 7.41 —4.3 Corporate Companies Other than Banks Counties in which valuation} was changed. .......... Counties in which valuation] was not changed........l All counties Ce .. (840,450 268,513) 268,513 268,513 | 268,513 268,512 268.5134 All Other Personal Property Counties in which valuation! was changed. .......... 73,216,301] 73,216,301 Counties in which saluation was not changed. .......| 18,809,083 18,809,083 All counties. . 92,025,384 92,025,384 79,361,368] loa 18,800,083 .. | .. 098.670.4511 4.9 Summary Table: All Counties Grand total real estate i | (land and town lots) . . {3,495,700,068(3,534,835,525|3,533,622,883] 1.1 (3 Grand total personal property. .......... 637,129,803; 646,860,169 647,533,122¢ 1.5 | 01 Grand total real estate and personal property ~~ 132,829.87*'4 181,695.694/4 181,156,005] 1.2 ®) 1 Minor changes in data were made as a result of correspondence with the Secretary of the State Tax Commission and the State Board of Equalization, 2 Less than one tenth of one per cent. 3 Assessor's valuation of the net value of insurance companies in St. Louis City. This item represents the allocation of the amount shown to a particular classifica tion and does not indicate a change resulting from the equalization process. + Amount shown in parentheses not added. TAX ADMINISTRATION 141 equalization process. The term “equalization,” or “equalization process,” does not imply that there is necessarily any change in total valuations for the state. It implies, rather, an ironing out of differences, a bringing together of the respective valuations for the several counties on a common level, regardless of whether, as finally equalized, property throughout the entire state is valued uniformly at 100%, 559%, or some other percentage. In order that further light may be thrown on this bringing together process and that the summary data which have been considered may not be misinterpreted, the changes made in the various classifications are presented by counties in Table 45. The data in this table will not be subjected to a detailed analysis. It is sufficient to mention only a few of the outstanding features of the equalization process as disclosed by this table. The county data for lands, town lots, and mules are particularly enlightening, in that the changes recommended by the State Tax Commission are frequently on a straight percentage basis. When such is the case, the implication is that the particular form of property the valuation of which is increased or decreased by a flat percentage had been undervalued or overvalued, as compared with other property in the same county and property in general throughout the state. For example, the valuation of lands in Clinton County was increased 209, and the valuation of town lots, 1097. It would seem to follow that the assessor had used different standards in assessing the two classes of real estate. The Commission presumably acted on statistical evidence in such cases, yet the numerous flat percentage changes would seem to preclude any sound claim to scientific precision. It is difficult to understand how a careful analysis could result in the recommendation of so many flat increases and decreases, and it would seem that, although information is at hand when these changes are recommended, the recommended increases and decreases rest, in part at least, on a judgment basis. For St. Louis County the valuation of mules was increased 509%, and the valuation of cattle, 30%. Compared with the number of counties in the state, the changes in the valuation of livestock were very few. There is nevertheless the im- 142 THE FISCAL PROBLEM IN MISSOURI TasLe 45: Cuances Mabe During THE EquaLrizaTtion in SpeciFic YVALuaTioNs! ror Counties, Taxes oF 1928 Source: Biennial Report of the State Tax Commission, 1927-19282 and Journal of the State Board of Equalization, 19282 [ncrease or Decrease (—) in Valuations Per Cent County Valuations as Fixed by Assessors as of June 1, 1927 Valuations Recommended by State Tax 'ommission Valuations as Fixed by State Board of Equalization Board of Tax Equal-Com- ization mission | ayer Tax over As- Pore 8€sS0T 8 | niccion [Lands Barton... . . Bates... .. ........ Boone..... ........ Butler. ............. Callaway. .......... Carroll. vvuniiossnan Chariton. .......... Clark. ... vend Clinton. ............1i Daviess... ........ De Ball. vouionssons Dunklin... ....... Franklin. ........... Gentry... cee Greene. ............ Grundy............. Jefferson. A Tohnson............ LAWIENCE. , .\ eur... Lincoln. ............ Macon. ............ Mercer. ............ Moniteau........... New Madrid. ....... Pemiscot ........... Pike............... Putnam............' Reynolds. .......... SEOtt. viii. Shelby. ............ Stoddard. .......... Sullivan. ous sven Towns, vu vowisissmn Vernon............. Warren. ............ Washington. ........ Wright. ........... Total, above counties... ....... 521,942,084 Total, all other coun. ties. .......... 941,744,691 941,744,691 941,744,691) 0.01 .. Grand total... ...|1436,040,6911,463,210,543]1,463,686,775| 9 ® 1 Bee colonies not included in this table, 2 See footnote 1, Table 44. 3 Less than one tenth of one per cent. ~20 TAX ADMINISTRATION 243 TasrLe 45: Cuances Mabe Durine THE EQUALIZATION iv Speciric VaLvaTions! ror CounTiES, TAXES OF 1928 (continued) Source: Biennial Report of the State Tax Commission, 1927-1928,2 and Journal of the State Board of Equalization, 19282 Increase or Decrease (—) in Valuations Per Cent Jounty Valuations as Fixed by Assessors as of June 1, 1927 Valuations Recommended by State Tax ommission Valuations as Fixed by State Board of Equalization Board of Tax Equal-Com- ization isi oh over Tax over As-|" Com: $E5501° 8 mission Town Lots Barry. ..oouieeeions Bates. ....ooviinnes Boone. ....oovuvennn Callaway. ..........' Cape Girardeau. .....' roll. cvs ir een SATIEL: seaanm sn sane ASS. teen Chariton. .......... Clinton. ... ...... SOE. ssp mm sg ge wen Crawford. pp Daviess.......oenu.. De Kalb, ........... Greene. ............ Grundy............. Johnson. ........... Lawrence. .......... McDonald. ......... Macon.... ....... Monroe. ............ Nodaway........... Putnam............ Reynolds. .......... Stoddard. .......... Sullivan. ........... Vernom. co ss esnanss Wright, ............ Total, above coun-LIES. vier reennn —-1.2 Total, all other coun- ! ties. ..... nn... 1,931,090.269'1,931,090.26911,931,090,269 0.0 Grand total. . . . ...|2,039,659,377[2,071,624,982]2,069,936.10° 0.6! 1 Bee colonies not included in this table. 2 See footnote 1. Table 44. 2,866,960] 2,944,475! 10,810,800 3,371,410 10,659,970 3,406,570 532,585 2,756,189 2,813,350 3,330,140 12,311,725 867,320 2,221,907 1,664,940 32,805,495 £932,280 5,076,643 2,996,66C 902,125 4,132,540 2,071,540 5,489,585 1,072,590 189,085, 2,085,434 1,918,74¢ 2,510,815 827.221 $3,080,352" 3.238.922 12,972,960 3,708,551 10,708,570 3,917,555 692,360, 3,307,426 3,094,685" 3,663,154 2,044,520 1,040,784 2333007] 1,831,434 34,445,769 5,178,903 5,584,307 3,299,626 1,053.490 4,959,048 2,175,117 6,814,064 1,233,478 226,902 2,189,705 2,110,619 4,519,467 609.942 $3,080,352! 3.238.922 12,972,960 3,708,551" 10,659,970: 3,917,555 692,360 3,307,426 3,094,685 3,663,154 12,244,520 1,040,784 2,333,002 1,831,434 32,805,495 5,178,903 5°584,307 3,299,626 1,053,490 4,959,048 2175117 6,814,064 1,233,478 226,902 2,189,705 2,110,619 4,519.46" 909.94 74 10.0 20.0 10.0 0.5 15.0 30.0 20.0 10.0 10.0 —0.5 20.0 5.0 10.0 5.0 5.0 10.0 10.1 16.¢ 20.0 5.C 5.0 15.0 20.0 5.0 10.0 20.0 10.0 01 144 THE FISCAL PROBLEM IN MISSOURI TasLe 45: Cuances Mabe During THE EqQuaLizaTion iN Specrric VaLuations! For COUNTIES, TAXES OF 1928 (continued) Source: Biennial Report of the State Tax Commission, 1927-1928, and Journal of State Board of Equalization, 1928! ‘ncrease or Decrease {—) in Valuations Per Cent Sountv Butler,.............' Caldwell. .......... Daviess............. DeKalb, ........... Franklin.......... Gentry............. Lewis. ............. Newton............. St. Louis. .......... Scotland. .......... Stoddard. ......... Total, above counties, «ove evans Total, all other coun! 885 0 wm ss wren: Grand total. .... Holt...............! St. Louis. ...... ... Total, above coun-Hes. uae inns Total, all other coun-| Ges. .... ov... Grand total - : Valuations as Fixed by Assessors as of June 1, 1927 Valuations Recommended by State Tax ommission Valuations as Fixed by State Board of Equalization Tax Commission over Assessor’'s $126,770 88,090 122,408 66,330 191,025 72,560 120,875 51,460 127,950 33490 219. % Mules $139,447 96,899 134,648 72,963 171,923 87,072 96,700 61,752 191,925 36,839 263.347 $139,447 96,899 134,648" 72,963 171,923 87,072 96,700 61,752 191,925 36,839 263.347 IL 10.0 10.0 10.0 —10.C 20.0 —20. 20.C 50.¢ 10.0 20.0 1,220,414 1,353,515 10,817,130) 10,817,130) 10,817,130! 0.0 12,037,544] 12,170,645 12,170,645 1.1, 273,320 171,460 Cattle 327,984) 222.892 327,984 277808 20.0 30.0 444,780) 42,576,596] 42,576,596] 42,576,596 43,021,376" 43,127,478" 43,127,475 23.q 0.0 I) N Board of Equalization over Tax Commission Motor Vehicles 759,000] 959,000 275,805 275,805 Cape Girardeau... ...| Gasconade. . . . . Total, above coun-£68 vv vn terns 1,034,805" 1,234,805 Total, all other coun-' | | ties. .......... 87,278,257" 87,278,257" 87,278,257 . - Grand total. . . . 88,313,062] 88,513,062] 88,312,342" 02] —o02 1 Bee colonies not included in this table. 2 See footnote 1, Table 44. TAX ADMINISTRATION 145 TaBLE 45: Cuances Mabe During THE EqQuaLizaTiON iN Speciric VALUATIONS! For CouNTIES, TAXES OF 1928 (continued) Source: Biennial Report of the State Tax Commission, 1927-19282 and Journal of the State Board of Equalization, 19282 Increase or Decrease (—) in Valuations Per Cent Jounty Valuations as Fixed by Assessors as of June 1, 1927 Valuations Recommended by State Tax a Valuations as Fixed by State Board of Equalization Tax Commission over Ase 2essor’'s Board of Equalization over Tax Commission Bank Stock Adair. ... - Andrew............. Audrain............ Barry.» soe so somnnanans Barton............. Bates. ..ovvevnasinne Benton............. Boone. ............. Buchanan........... Caldwell. ........... Callaway. .......... CASS. vv avenrenrers! Cedar. ..iieeeaeenn IBF min HE HE ER Re Clinton. ............ Cole. .....oovenn. COOPEr. + vv vvranenn Crawford. .......... Dade, summers vss 20m DeKalb. ........... Douglas. ........... Dunklin, . Ceres £115 5 ZN Srundy..... ....... PolGi 5 woe 050m 1 45 5 9a ‘oward.... ....... fowell............. ,ackson..... ....... ASPET. vue iin jefferson. ........... ‘ohnson............ afayette........... LAWIence. . ....... .. WIS. vee ian ae AND. een dvingston. ......... Marion. ...... Mississipni. - 422247! 136,311 820.0271 208.211 214470) 447,333 172,450; (,024,834 2,596,870! 576,961 420,257 726,554) 91,508 515,726/ 152.224 592.836 343493] 262.894 256,231, 351,070 87.140 288,965) 397,665 337,833 484.650: 398,400 222.812 7,255,600 266,262} 576,196 045,493: 868.555. 194,900 388.798 577.030) 352,815] 1,021,881 98.08 471,247 175,31 825,027 262,711 233,470) 514,333 229,931 1,263,114 3,513,870 624,461 458,257 751,554 115,508 746,226 670,224 630,836 369,495 281,894 261,131 361,070 122,035 319,429 417,665 347,833 482,743 480,550) 230,812 17,424,040, 1,878,262 606,296 1,020,493 QR7 eg 5 22(c- 49. 419,798! 749,623) 450,815 1,052,881 114 O09 471,470 116] 175311 28.6 715,027 0.6 223.975] 262 233,470 8.9 514,333] 15.0 229931] 33.3 1,060,114] 23.3 3,181,770] 35.3 624,461 8.2 458,257 9,0 751,554 3.4 84,3451 26.2 625,883) 44.7 624,974] 48.2 554,336 6.4 369,495, 7.6 262,894 7.2 261,131 1.9 361,0701 2.8 122,035 40.0 319,429 10.5 397,665 5.0 347,833 3.0 482743 —04 480,550: 20.6 230,812 3. 17,424,040 1.0 1,878,262. 48.3 590,336! 52 1,020,493 —24 895,048 11.4 190,0690 12.8 419,798 8.0 770,623) 10.7 450,815, 27.8 1,027,881 3.0 114 Nee nn —13.3 —147 —~16.1 —9.5 97.0 ~16.1 —68 —12.1 —87 43 226 278 —13.6 "28 ng 1 Bee colonies not included in this table. * See footnote 1, Table 44. 146 THE FISCAL PROBLEM IN MISSOURI TasLE 45: Cuances Mabe During THE EquaLizaTion iN Speciric VaLvaTtions! For CoUNTIES, TAXES OF 1928 (continued) Source: Biennial Report of the State Tax Commission, 1927-1928,% and Journal of the State Board of Equalization, 19282 Increase or Decrease {~~} in Valuations Per Cent County Valuations as Fixed by Assessors as of June 1, 1927 Valuations Recommended by State Tax DE Valuations as Fixed by State Board of Equalization Tax Comtnisston over As-Sessor’s Board of Equalization over Tax Commission Rank Stock Monroe. ... ee Morgan............. New Madrid. ....... Newton. ....oovvenn. Nodaway........... Pemiscot..... ...... Perry. covueeennnenn. PettlS. .vovurrennann Pulaski............. Randolph. .......... RAF owns 5m 08 mosses s Reynolds. .......... St. Charles. ......... Ste. Genevieve....... Saline. ............ Stoddard............ Sullivan. ........... Vernon. ......coeee. Webster. , .......... Worth. .....ovvennn. Wright. ............ St. Louiscity ..... . Total, above coun-HES. cov vaaanns. Total, all other coun-| t68.cusamareis Grand total. . .. Adair....... ; Audrain ............ Barry. ......coounn Buchanan........... Butler. ............. Callaway........... Cape Girardeau...... Carroll. ........ Cass. . . 367,410 72,688 389,490 309,370 814,040 312,408 216,800 781,760 230,842 546,526 434,960 101,387 1,126,051 152,818 1,224,220 301,586 301,260 368,245 174,427 167,939 116,991 59.610.950 493,010! 93,488 392,490 334,370 862,940 392,408 271,700 935.760 220,842 610,526 458,860 106,387 1,157,051 200,118 1,264,220 349,586 321,260 496,175 185,427) 175,939 161,891 64.457.81 493,010 93,488. 392,490 334.370 862,940 350,393 271,700 935,760 220,842 610,526 434,905 106,387 1,137,044 200,118 1,264,220 349,586 321,260 496,175 185.427 175.939 141.891 £9.890.95(: 104,717,760 108,237,519 20,468,005 20,468,005 20,468,005 125.185.7658" 134.476.0928 128.705.524 All Other Personal Property 764,504! 142,830" 185.262: 325 200 xt 74 51,750 370,575 215,627 120 69. 764,504 142,830 185,262 5,285,290 215,740) 31,950 370,575 215,477 129°60 773,301 182,547 242,064 5,387,540 281,365 60,692 403,005 370,341 144 08! 3.2 28.6 0.8 8.1 6.0 25.6 25.3 19.7 —4.3 11." 5. 4c 2.8 31.0 3.3 15.9 6.6 34.7 6.3 4.8 304 8.1 R9 | —10.7 252 ~17 cq in 1.2 27.8 30.7 1.9 30.4 90.0 8.8 AR 1 Bee colonies not included in this table. t See footnote 1, Table 44. TAX ADMINISTRATION 147 TaBLE 45: Cuances Mabe DvuriNne THE EqQuaLrizaTion in SpeciFic VaLuaTions! ror CounTIES, TAXES OF 1928 (continued) Source: Biennial Report of the State Tax Commission, 1927-19282 and Journal of the State Board of Equalization, 19282 Increase or Decrease {(—) in Valuations Per Cent Valuations as Fixed by Assessors as of June 1, 1927 County Valuations Recommended by State Tax Commission Valuations as Fixed by State Board of Equalization All Other Personal Property (continued) hart. hi iis vanes 30,580 30,580] 40,190 Tay. eerie 96,284 Clinton. ............ 125,680 Sle. «samen 662,050 De Kalb... ........ 72,955 Sreene. .. ..siuvens 1,470,325 Grundy. . weve 125,664: Hickory. .....oovee 182,130 Joward. .. ve ee 285,475 Howell. .... ra gay 428,410 ‘ackson. . . Ip 41,052,668 johnson... . cere 174,587 KNOX. ovievnnnonnnn 71,310 Lafayette. .......... 609,120 Lawrence. .......... 312,350 Macon......oovvennn 203,180 Marion. ............. 339,516 Montgomery. ........ 163,015 Morgan.............t 137,777 JI€EOM. + vv evvrennne, 66,103 Pettis. . oo enrnn. 1,010,865 Phelps......ovvveenn 62,843 Randolph. .......... {,814,750 St. Charles. ......... 207,174 St. Francois. ........ 1,071,640 Baling, vi vnnvirinns 493,670 SCOtt. + vvvvnnnnenn. 241,959 Vernon. ............ 142,075 St. Louis city ........ 20.352,72( Total of above coun. es. asa wnsrrre Total, all other coun-| TIES. veo oven 18,809,083 Grand total. . .....1 92,025.384 92,025,384 98,670.45 ! Bee colonies not included in this table. ! See footnote 1, Table 44. 1 Tax Commission over Assessor’s Board of Equalization over Tax * Com-~ mission 31.4 16.7 12.7 “4.0 03 0.3 276.8 27.6 27 4.5 6.9 278.6 19.0 4.9 39.9 107.9 62.7 14 37.3 190.3 45.2 81.3 10.8 12.5 13.3 42.1 27.7 9.0 9.1 70 148 THE FISCAL PROBLEM IN MISSOURI plication not only that mules and cattle in St. Louis County were undervalued, which is not questioned, but also that the 509, and 309, increases resulted in placing these forms of livestock on a basis of equality with the same forms of livestock in other counties and with property in general in the county and in the state as a whole. It is doubtful if any one connected with the administration of the general property tax would make such a claim. The data for all other personal property are particularly suggestive. As has been seen, the changes made in the valuations of all other personal property were directly the result of action by the State Board of Equalization. The valuations submitted to the State Tax Commission were recommended without change. The State Board of Equalization, however, saw fit to make numerous changes. The classification, all other personal property, includes miscellaneous forms of property that cannot be placed in any other classification. Unquestionably a large amount of property that should be placed in this classification escapes taxation. Complete assessment is almost an impossibility, and in view of this fact the equalization of valuations among the counties must represent a stupendous task. When the difficult nature of the assessment problem is kept in mind, it seems extremely doubtful whether any degree of equalization in this class of property is accomplished within a single county, far less in the state as a whole. In Hickory County, for example, the valuation as finally equalized represented an increase of 276.89, the State Tax Commission having recommended a valuation of $48,330 for taxes of 1928, which was increased to $182,130 by the State Board of Equalization. For taxes of 1927, the valuation of all other personal property for this county was $40,641.! The latter valuation went through the equalization process without change. Other similar examples might be mentioned. Motor vehicles in Callaway County were assessed at $158,280 as of June 1, 1926, for taxes of 1927, or an average of $80.42. The State Tax Commission recommended a valuation of 1 Journal of the State Board of Equalization, 1927, p. 20. 2 Biennial Report of the State Tax Commission, 1927-1928, p. 100. TAX ADMINISTRATION 149 $237,420, or an average value of $120.62, for taxes of 1927. The latter valuation was approved by the State Board of Equalization without change. For taxes of 1928, the assessor’s valuation of motor vehicles in the same county was $133,160, or an average value of $68.46,% and this valuation was recommended by the State Tax Commission and approved by the State Board of Equalization? That is, for taxes of 1928, an average value of $68.46 was approved, but for taxes of 1927 an average value of $80.42 was deemed too low, and it was therefore increased to $120.62, or 50%. It is evident that one of the equalized average values must be in error. The property of public utilities other than certain strictly local property, as previously stated, is centrally assessed by the State Tax Commission, which submits its recommendations to the State Board of Equalization for final action. Table 46 shows in detail the changes made by the State Board of Equalization in the valuations for taxes of 1928. The property in this classification was assessed by the State Tax Commission at $493.2 million, which was reduced to $486.1 million by the State Board of Equalization, the net decrease amounting to 1.4%. The principal reductions were in the valuations of electric light, power, and transmission companies; the total valuation for this group was reduced 6%. The valuation of one large street railroad company was reduced 14.3%. The other changes made in the valuations of utility companies were either very small on a percentage basis or involved comparatively small companies. Some of the changes made by the State Board of Equalization in the valuation of public utilities result from hearings before the Board, at which representatives of the companies desiring reductions are present to state their case. If the changes made in the valuations of companies that are given a hearing may be taken as a criterion, it appears that mere presence at a hearing does not ordinarily result in a change. The Journals of the State Board of Equalization would seem Journal of the State Board of Equalization, 1927, p. 19. 2 Biennial Report of the State Tax Commission, 1927-1928, p. 100. + Journal of the State Board of Equalization, 1928, p. 16. 150 THE FISCAL PROBLEM IN MISSOURI to indicate that reductions are granted only on conclusive evidence. TasLe 46: Pusric UtiLity VaLuations! ror TAXES oF 1928 as REcoMMENDED BY THE STATE Tax Commission AND AS F1xED BY THE STATE BoARD oF EQUALIZATION Source: Journal of the State Board of Equalization, 1928 Computed by National Industrial Conference Board Utility Company Steam and Terminal Missouri Pacific Railway Co................ St. Louis Southwestern Railway Co.......... St. Joseph Belt Railway Co................ Missouri and Illinois Bridge and Belt Railroad Terminal Railroad Association of St. Louis. . . Leavenworth Terminal Railway and Bridge Co.. railroad valuation. . Total valuation of properties, valuations of which were changed. ................. Total valuation of other properties, valuation unchanged. ....... .. ....... ~ Total valuation of all properties ......... Valuations Recommended by State Tax OMMission Railways $44,332,519 4,284,872 385,186 300,000 13,878,340 36,339 63,217,256 222,868,514 286.085.77n Deicreasein Valuations made by State Board of Equalization from State Tax Commission Per Cent Valuations as Fixed by State Board of ¥.qualization $44,167,726 3.784.872 300,000 275,000 (3.812.340 0.4 11.7 22.1 8.3 0.5 25.0 27.254 62,367,192 222,868,514 | .. 285,235,706 | 0.3 Street and Electric Railways Kansas Ciey Public Service Company....... | 14,010,224 | 12,010,224 | 14.3 Total valuation of other properties, valua- | tion unchanged. ...... ......v0vv..... 51,440,265 514402651 Total valuation of all properties .... 65450489 ' 63,450,489 31 Bridge Companies Leavenworth Terminal Railway and Bridge COMIDANY . + iw spss urvne ss iss spvpe es Total valuation of other properties, valuation unchanged. ............0oiaiaann Total valuation of all properties... . ... 1 Centrally assessed property only. 180,350 6,592,267 * 6,772,617 135,260 6,592,267 1. 6,727,527 ' 0.7 25.0 TAX ADMINISTRATION 151 TasLE 46: Pusric UtiLity VaLuations! For TAXES OF 1928 aos REcoMmMENDED BY THE STATE Tax CoMMissION AND As FIXeD BY THE STATE Boarp oF EQuaLizaTIiON (continued) Source: Journal of the State Board of Equalization, 1928 Computed by National Industrial Conference Board Dejcrease in Valuations made by State Board of Equalization from State Tax Commission Per Cent Valuations Recommended by State Tax Commission Valuations as Fixed by State Board of Equalization Utility Company Electric Light, Power, and Transmission Companies City Light and Traction Co............. . A $686,376 $650,000 Maryville Electric Light and Power Co....... 473,215 425,000 Missouri Power and Light Co..... .......0. 4,653,025 4,300,032 Springfield Gas and Electric Co. ........... 1,246,151 900,000 Kansas City Power and Light Co............ 17,923,955 16,200,074 Empire District Electric Coo..vvvvnnieennn. 3,581,659 1,986,550 Electric Utilities Cou. ov vvvneneenniennenns 144,479 103,766 Lawrence County Water, Light and Storage Co. 134,136 53 102 7.6 27.8 9.6 44.5 28.2 24.6 Total valuation of properties, valuations of ~———e ————0 —— which were changed... .......coocinvn 28,886,710 | 24,699,558 | 14.5 Total valuation of other properties, valuation unchanged. . -. L... 40,976,496 | 4097649 .. Total valuation of all properties. ......-..I 69,863,206 1 65,676,054 1 6.0 Summary—All Public Utilities Steam and terminal railways. .....oooerenns! 286,085,770 Street and electric railways. - Co... 65450489 Bridge companies. . ....ooviaareqqereiees 6,772,617 Electric light, power, and transmission com-PANIES. +e erevnenorne narnia Telephone companies. ...... Telegraph companies. . . Dil pipe line companies. 69,863,206 41,820,631 6,590,673 16,578,844 197.162.182 Grand total. . ... 1 Centrally assessed property only. 486,079,876 14 Criticism of Missouri's Equalization System The defects in the equalization system of Missouri are in large part traceable to the ex-officio character of the State 152 THE FISCAL PROBLEM IN MISSOURI Board of Equalization. Since the status of the Board rests on constitutional authority, “it is almost impossible for the voters to change the Board, either in respect to its duties, or its form, except by means of a constitutional amendment.” Proposed constitutional amendments are not always approved, however justifiable they may be. In November, 1924, the Missouri electorate voted on an amendment that would have abolished the State Board of Equalization and assigned its functions to some other body. The amendment was defeated by a vote of approximately two to one. Another sound objection to an ex-officio Board of Equalization is that the members only rarely have any professional interest in their work. If an elected state official has had any previous practical experience in taxation, he may continue to have a professional interest in the subject, but usually his work on the State Board will be secondary to other activities. Each member of the State Board of Equalization in Missouri is the active administrative head of an important state department, and if a member did not have any experience in taxation prior to his election it is too much to expect that he will acquaint himself so thoroughly with the intricacies of taxation that he can be said to have acquired a true professional interest in the subject. The members of an ex-officio board are officials elected to. administrative positions by the dominant party. In general, they need one kind of training for the positions to which they are elected and a different training for their duties on the State Board. The qualifications requisite for the office of Attorney General are naturally valuable for a member of the Board, but this does not apply to the other state officials. A man may be an excellent Governor or Auditor without having any specialized knowledge of taxation. The same criticism applies to the other state executives, the Secretary of State and the State Treasurer, who serve on the State Board of Equalization in Missouri. Regardless of their lack of previous training the Board members in time might become reasonably familiar with the problems and processes. of equalization if they devoted some time to a study of the subject. Since they are elected officials, however, they may 1 Jensen, J. P.: The General Property Tax, p. 354. TAX ADMINISTRATION 153 be superseded, and a new set of officials may be elected in their stead at the time when a reasonable degree of efficiency has been attained. This transient character of its membership constitutes one of the outstanding weaknesses of the ex-officio State Board. The new Board begins where the old left off, and usually the most that can be hoped for is a maintenance of existing standards or a slight improvement in cases in which the new membership is by training better qualified for the task of equalization. Aside from the fact that the membersof an ex-officio Board do not have sufficient time to acquire an adequate knowledge of taxation, it is an admitted fact that ordinarily they do not even have sufficient time to devote to the work of equalization. “There are many instances,” writes J. P. Jensen, “where such a board will meet in the morning and will adjourn almost immediately, charging the state with a day’s work. In such cases, the work done is worse than useless. The members cannot possibly become acquainted with all the information it is necessary for them to have in order to be competent to judge the values of widely scattered properties. Consequently, when well-organized interests are presented, it is but natural to grant or refuse all requests for relief regardless of their merit.”* It is not to be inferred that this criticism applies directly to the Missouri State Board of Equalization. However, the system of morning meetings has been in effect, and, if the official reports may be taken as an indication, attendance at the meetings may leave something to be desired. For the purpose of carrying out its functions the Board met on 240 days in 1927,% and each member received $5.00 per day, regardless of absences. In 1928 the Board was in session 225 days,® but its work in 1929 required only 52 days.* The membership of the Board in 1929 was changed considerably as a result of the change in administration.® The State Tax Commission is a recommendatory body so t Jensen, J. P.: The General Property Tax, p. 354. 2 Journal of the State Board of Equalization, 1927, p. 402. ? Journal of the State Board of Equalization, 1928, p. 374. t Journal of the State Board of Equalization, 1929, p. 300. § The previous State Auditor and Secretary of State, and Attorney General were ce-elected in 1928. The Governor and the State Treasurer were new. {54 THE FISCAL PROBLEM IN MISSOURI far as the equalization process is concerned. It has been handicapped in the exercise of many of its functions by the lack of sufficient funds, and at the present time its staff is inadequate to carry out its statutory duties. Even more vital than difficulties of this nature is the fact that although the Commission might succeed in obtaining uniform valuations throughout the state as a result of persistent efforts, its recommendations would be subject to overruling by the State Board of Equalization. The members of the Commission are presumably appointed because of their fitness for the position, yet their findings and recommendations have no authoritative standing. There is a dual equalization, not counting the work of the county and other local boards, and the administrative agency that should be qualified to carry out an effective equalization procedure, namely, the State Tax Commission, is subordinate to another body, namely, the State Board of Equalization. It requires no particular sagacity to see that basically such a system is not sound. In writing about the dual system, J. P. Jensen states: “Such is also the case in Missouri, and nothing is more instructive of the futility of detailed constitutional provisions governing conditions that constantly change than the acrimonious conflicts and waste of effort, with the resulting confusion and inefficiency, between the two boards in both of these states.” Colorado is the other state to which reference was made. In that state, however, the administrative functions of the State Board have since been assigned very largely to the Tax Commission. - It can hardly be questioned that the system is at fault, and in view of the change in conditions since 1875, when the section providing for the ex-officio Board first became a part of the constitution, it is difficult to understand why the Board has not long since been abolished. ProPERTY ESCAPING ASSESSMENT The base for the general property tax in Missouri is very broad, butfa large amount of property within the state is exempt because it is owned by governmental agencies, 1 Jensen, J. P.: The General Property Tax, pp. 345 f. TAX ADMINISTRATION 155 churches, schools, and so on. In 1924 the State Tax Commission made an extensive survey of such properties and estimated their value as $528 million.! On the same basis the value of such property at the present time is no doubt close to $600 million. This exempt property does not enter into the tax base in any manner whatever. In attempting to reach intangible property other than bank stock the general property tax has not been a success. This applies to Missouri and other states that try to tax intangibles by means of the general property tax. In 1924 the Missouri State Tax Commission estimated that $2 billion of taxable intangible personal property was escaping taxation.2 What the amount now 1s, it is difficult to state. In recent months certain statements which indicate that intangible property in Missouri amounts to four times as much as tangible property have been widely circulated throughout the state. The basis of comparison used is tangible property, not taxable tangible property, and it is doubtful if statistical evidence could be produced in support of so broad a contention. In the same report in which the taxable intangibles escaping taxation were estimated at $2 billion, the State Tax Commission said: “We believe it very conservative to estimate that the value of intangible personal property in this state equals the value of the real estate, yet the amount returned for taxation is only about 6.7% of the amount of real estate returned.” The smaller base used in this comparison would seem to indicate that the recent statements alleging a proportion of four to one are questionable. It is an undoubted fact that the volume of taxable intangibles is increasing, and that the proportion reached for taxation is declining. In fact, in recent years there has been an absolute as well as a relative decline in the amount of money, notes, bonds, etc., listed for taxation under the general property tax. There are several reasons for the decline. In the first place, the general property tax is not adapted to the taxation of intangibles. Intangibles are not usually visible, and the assessor is often unable to obtain the | Biennial Report of the State Tax Commission, 1923-1924, p. 20. 2 Biennial Report of the State Tax Commission, 1923-1924, p. 20. $ Biennial Report of the State Tax Commission, 1923-1924, p. 18. 156 THE FISCAL PROBLEM IN MISSOURI information that he desires, even with the utmost effort. Property cannot be readily assessed unless it is visible, and intangibles, with the exception of bank stock, which can be readily valued because of the publicity given to bank statements, do not fall within this category. The taxpayers in Missouri who do not report all of their intangibles are in the great majority, and it is highly probable that a large proportion of those owning taxable intangibles do not report any part of such property. Another important factor is the confiscatory aspect of general property tax rates when applied to income from intangibles. Joplin, for example, has a total tax rate on city property of approximately $4.00 per $100 of valuation. Assume that a resident of this city owns a taxable security yielding a return of 6%. If this security is returned for taxation, the taxes will amount to two thirds of the income, provided that it is assessed at full value. It is true that other forms of property are not assessed at full value, but nevertheless there is the legal right to assess the security at full value if it is returned. Under the circumstances it is not surprising that such a security is not returned for taxation. Considering the confiscatory aspect of the rates, it is remarkable that the volume of intangibles returned for taxation is so large as it is. Another element of the problem involves the question of fractional assessments. Missouri assessors probably would be the first to admit that real estate assessments are not on a 1009, basis. It requires, however, considerable imagination on the part of the assessor to value a dollar at less than a dollar. It is perhaps natural that intangibles reached for taxation should be assessed at a higher percentage of true value than is tangible property. A large amount of livestock in Missouri escapes taxation. In many cases it is doubtful if the assessor is able to make an accurate count. For example, if, when the assessor calls at a farm, cattle are at pasture a considerable distance from the farm buildings and cannot be seen without considerable delay, the easiest way is to accept the owner’s statement concerning the number and value of the cattle. The assessor receives a relatively small stipend per name on the assess- TAX ADMINISTRATION 157 ment list, and he could hardly be expected to spend an hour’s time in order to make a painstaking assessment of one form of livestock. The same factors apply to the assessment of other forms of livestock, but probably in lesser degree. The United States Bureau of the Census makes a quintennial census of agriculture. Among the data that are reported and compiled are those for the principal kinds of livestock on farms. The State Tax Commission of Missouri also reports the number of the principal kinds of livestock that are assessed for taxation. Table 47 shows a comparison of the data from these two sources for the year 1925.2 Before considering the data in this table, it should be pointed out that, particularly in the case of horses and mules, the totals for livestock assessed should be normally higher than the totals from the Census of Agriculture. Livestock on farms is a smaller aggregate, since a considerable number of horses and mules are used in urban communities and are therefore not reported in the Census of Agriculture. On the other hand, the number of cattle, sheep, and swine assessed is probably normally smaller than the census total because of the difference in dates as of which the data are compiled. In spite of these limitations, the data are nevertheless suggestive. This is particularly true of the data for horses and mules, since the arban factor should more than offset any decline in the number of these forms of livestock on farms which might occur between January 1 and June 1. In tabulating the data for Table 47 two groups of totals were compiled. The one group is for all counties in the state excluding St. Louis City, St. Louis County, and the three counties? containing the three largest cities of the state other than St. Louis. The other group of totals is for the entire state. The ratio of horses assessed to horses reported on farms in the first case was found to be 69.29%, and in the second, 71.4%. On the other hand, the ratios for mules were much higher—81.9% and 82.89, respectively. On the basis of these ratios it would appear that a larger proportion of mules than horses is assessed for taxation. Variables of i Census of Agriculture data are as of Jan. 1, 1925. Assessment data are as of June 1, 1925. t Jackson, Buchanan, and Greene. 158 THE FISCAL PROBLEM IN MISSOURI considerable importance influence the ratios for the other forms of livestock. It is doubtful, however, if any factors that are normally operative account for the comparatively small ratios for swine. TasLe 47: Numer oF Princirar Kinps oF Livestock AssesseDp FOR Taxation CoMPARED WITH NUMBER REeporTED IN U. S. CENSUS oF AGRICULTURE, 1925 Source: Biennial Report of the State Tax Commission, 1925-1926, and U. S, Census of Agriculture, 1925 Assessed for Taxation as of June 1, 1925 Reported in Census of Agriculture as of Tan. 1. 1925 Ratio of Number Assessed to Number Reported Per Cent All Counties clorses. . . v5 Mules. . . Shr we SE. syns ren canna aE wo Sheep. . . Swine. 505,” ane 1.7 . 2 ¢ 3 75.6 71.0 kiXel All Counties, Exclusive of St. Louis, Jackson, Buchanan, and Greene, and St. Louis City Horse Mules. . .. i errereenen Cattle. ......... .......... Sheep. ..... - Swine 4) Ar 293,574 1,709,298 518,804 302.867 477 To asg-2,267 - ocgr Os Ngo. ~ 1 Motor vehicles frequently escape taxation under the general property tax in Missouri, and the proportion of the total that is assessed varies greatly from county to county. Of all the property that escapes taxation, there is probably the least excuse to be offered in this case. As an approach to the problem of ascertaining the extent to which motor vehicles escape assessment, the state registrations in 19271 for each county were compared with the number of motor vehicles assessed? as of June 1, 1927. Table 48 shows the data used in making this comparison and the resulting ratios of the number assessed to the number registered from each county. Worth County showed a higher ratio than any other 1The state registration year begins February 1 and ends January 31 of the following calendar year. 2 The number assessed in each county was computed from the total valuation and average value data contained in the Biennial Report of the State Tax Commission. TAX ADMINISTRATION 159 county, 98.6%. On the other hand, the ratio for Andrew County was only 42.8%, and the other counties showed ratios of varying size between the two extreme limits. Of the more densely populated counties, Jackson County, in which Kansas City is located, had the highest ratio, 88.5%, ranking next to Worth County. It should be pointed out that the data in Table 48 are not absolutely comparable. Some motor vehicles are purchased after June 1 and are therefore registered after the assessment date.” This factor would scarcely account for any appreciable difference between counties. There may be other factors that influence the comparisons among counties to a slight extent, but they could not account for the ratio of 67.3% for the state as a whole. On the basis of the data in Table 48 it is safe to conclude that approximately 30% of the motor vehicles in the state escape the general property tax. TasLe 48: Motor VEHICLE REGISTRATIONS COMPARED Wit THE NUMBER ASSESSED FOR THE GENERAL Property Tax, By CounTigs, 1927 Source: Data for Registrations from the Office of the Secretary of State County Adair. . .. Andrew. .... Atchison. . Audrain. . Barry. . Barton. . Bates. .... Benton... Bollinger. . Boone. . . Buchanan. Butler........... Caldwell. ..... --Callaway. Camden Number of Registra-+10onsl 4,294 3,332 3,462 4,405 3684 3,228 4,647 2111 1,395 £482 18,007 3.31 2. Number ! Assessed for the General Property Trav? 2,180 1,427 2,198 3,079 2'810 2,318 3,109 310) Ratio of | Average As Number Ti Assessed to per Motor Registrations Vehicle bat Aon Acepseads 50.8 42.8 63.5 69.9 76.3 $157.79 199.32 174.39 115.41 130.56 71.8 69 135.51 130.13 127.94 132.37 £55 61 217.48 153.23 103.30 68.46 103 AT 1 For registration year 1927, 2 Computed from valuation and average assessed value in Biennial Report of the State Tax Commission, 1927-1928. 8 Data from Biennial Report of the State Tax Commission, 1927-1928, except for those counties the valuation for which was changed by the State Board of Equalization. The average value for the latter counties was recomputed. 160 THE FISCAL PROBLEM IN MISSOURI TaBLE 48: Motor VEemicLe REcisTraTIONS COMPARED WitH THE NUMBER ASSESSED FOR THE GENERAL ProrerTY TAX, BY CoUuNTIES, 1927 (continued) Source: Data for Registrations from the Office of the Secretary of State Countv Cape Girardeau. ............ . Carroll. ......oviviin an... Carter. ....... A Cass. ..... Sonia ¥ Coardrn . Chariton. ;.. Christian. .... Clark. ......... Clay. ...... Clinton Cole. .... Cooper. .... Crawford. ... Dade. .... Dallas. | Daviess. ...... De Kalb...... Dent. ..... Douglas. . .. Dunklin. . Franklin. . Gasconade. . . . Gentry. ... Greene. ..... Grundv Harrison. Henry. .... Hickory... Holt. ..... Howard Howell. . . : ron.........coovvviiviii... YACKSOM, 1.0 5 35 mers s 5 55 - ornee = asper........ eferson Number of Registrat1onsl 6,550 4,360 598 4,961 1.889 4,048 2.297 2,527 5.912 3108 5,958 3,529 1,562 2117 1.508 2,963 2,498 1,607 1,176 1478 6,372 2.728 3,099 17,865 7962 4,060 5.022 1,054 3214 2.642 2,952 1,389 93,146 17 ars Number Assessed for the General Property Tv? 6,152 2,323 489 3,018 1.428 2,436 1,873 1,292 3,316 1.977 4,497 2,793 636 1,530 1.058 1,908 1615 830 1,030 YEE, 4,375 2,140 1,765 9,175 1,645 2,758 3,563 908 1,553 (54 2124 i 29,47 nae Ratio of Number Assessed to Registration: Per Centr 53.3 81.8 60.8 75.6 60.2 81.5 51.1 56.1 41.1 75.5 79.1 43.9 72.3 70.2 64.4 64.7 51.6 87.6 65.9 68.7 78.4 57.0 51.4 47 4 67.9 70.9 86.1 48.3 550 2.2 51.2 00 Average Assessed i per Motor Vehicle Assessed? 22.1 123.00 153.22 141.25 104.25 106.52 111.00 112.68 153.22 155.81 120.64 122.00 98.13 131.89 110.00 101.86 104.96 115.83 98.99 107.20 143.41 128.54 163.24 193.95 117.70 128.13 152.26 102.84 151.26 122.98 140.42 115.70 245.97 161.92 25.83 1 For registration year 1927. ? Computed from valuation and average assessed value in Biennial Report of the State Tax Commission, 1927-1928. 3 Data from Biennial Report of the State Tax Commission, 1927-1928, except for those counties the valuation for which was changed by the State Board of Equalization. The average value for the latter counties was recomputed. TAX ADMINISTRATION 161 TaBLe 48: Motor VEHICLE REGISTRATIONS COMPARED Wit THE NUMBER ASSESSED FOR THE (GENERAL ProperTY TAX, BY CouNTiEs, 1927 (continued) Source: Data for Registrations from the Office of the Secretary of State County johnson. ...... Knox..........-Laclede. ..... Lafayette. . .. AWTENCe . Lewis. ..... : Lincolm........ ..oocoii.... Linn... Cee Livingston. .........oceevn... McDonald. | Macon. . Madison. ... . Maries. . Marion. . Mercer Miller. .... Mississippi. . . . . . Moniteau . . Monroe. ....... Montgomery. . Morgan. ....... 2 New Madrid. .................. Newton. ... SAE Nodaway. . eee Oregon. i Osage. . . Patho uaunisiean = Pemiscot. ...... Perry..... Pettis. . Phelps. . Pies cowie Platte. .. Polk. ... Pulaski. Number of Registrational 5,172 2,450 2,368 6,243 1670 2,914 3.165 4,753 3.719 1°944 4,790 1,207 i178 6,542 1.894 2,083 1,844 2.383 2,930 2796 1,899 2,536 1,954 6,816 1.338 2,092 735 3,243 2.504 7 10. 2,347 3,696 ) 750 2 481 Number Assessed for the General Property T or 4,008 1,362 1,384 3.716 2869 2,062 2,032 2,760 2,112 1.446 3,043 804 810 5,113 315 1,347 1,167 1,818 1851 ii 1,393 1,571 2,656 3,753 1.034 1,054 625 369 Q7Q £90 Yi Is NAN Ratio of Number Assessed to Registrations Vor Cont led 55.6 58.4 59.5 82.8 70.8 64.2 58.1 56.8 74.4 63.5 66.6 68.8 78.2 4.1 64.7 63.3 76.3 62.5 12.1 73.4 61.9 53.6 55.1 77.3 50.4 85.0 42.2 cg, oT 35.1 54 4 “ty - ' Average As. sessed Value per Motor Vehicle Acsesseds $130.50 122.91 111.70 186.17 147.77 125.20 103.15 158.97 155.49 122.93 119,92 130.24 101.28 150.55 148.00 151.74 73.07 125.89 105.89 137.00 122.40 127.82 128.43 143.11 106.65 116.61 77.12 73.29 148.18 137.77 90.85 120.53 179.69 129.64 7 QN L For registration year 1927, 2 Computed from valuation and average assessed value in Biennial Report of the State Tax Commission, 1927-1928. 8 Data from Biennial Report of the State Tax Commission, 1927-1928, except for those counties the valuation for which was changed by the State Board of Equalization. The average value for the latter counties was recomputed. 162 THE FISCAL PROBLEM IN MISSOURI TasLe 48: Motor VEnICLE REGISTRATIONS COMPARED Write THE NUMBER ASSESSED FOR THE GENERAL ProrrrTv Tax, BY CouNntiES, 1927 (continued) Source: Data for Registrations from the Office of the Secretary of State County Putnam. . .. Balls, ,oouvesn. Randolph. ..... Ray......... Revnolds. . - . Ripley....... cen St. Charles... cere Bi. Clade. cviowarsssmmnnnnssns St. Francois. .....ovevueurernn. Ste. Genevieve .. St. Louis. . . Saline. .... Schuyler.......... Scotland... Scott Shannon. . Shelby....... Stoddard. . .. Stone...... —... - Sullivan. . Taney... 0 Vernon. ..... Warren. . Washington. ..... .. Wayne. ......... Free Webster. ........ dw Worth, ........-- I WrIghE, . covrnn ssa nmmrrmrsnns St. Louis City. .....c.coninnn Total. ... All counties, excluding Buchan. an, Greene, Jackson, and St. Louis Citv. Number of Registra-*10ng} Number Assessed for the General Property Te? Ratio of Number Assessed to Registration er Cent Average Assessed Value per Motor Vehicle Acceccedd 2,256 2,108 5,521 4,195 1138 1,226 1,599 3,557 2.267 or 54.5 75.9 64.4 54.0 68.1 $113.33 88.94 204.97 142.77 158.70 1,043 5,304 2,122 7,146 1371 820 2,778 1,691 3,624 997 78.6 52.4 79.7 50.7 727 [29.35 173.62 127.28 112.39 117.92 46,265 6,496 1,692 2,163 2177 26,729 3,053 928 902 7.390 57.8 47.0 54.8 41.7 50.3 179.90 199.25 83.69 102.80 76 7Q 1,012 3,052 3,520 1,432 Y 604 783 1,649 2.438 1,044 1.692 77.4 54.0 69.3 72.9 65.0 132.29 157.52 110.93 124.35 99 01 1,053 2.273 £862 L740 468 1,520 3,510 904 44.4 66.9 72.2 571 178.23 121.93 100.78 141 99 1,415 1,286 2,723 1,573 2,313 147 441 1,118 826 1,567 1,551 1,492 00.420 79.0 64.2 57.5 98.6 €15 fe 1 118.71 123.02 144.80 121.36 149.00 279.17 480.927 458.439 &7.3 192.42 404.378 }oer01a 62.6 139.16 1 For registration year 1927. 2 Computed from valuation and average assessed value in Biennial Report of the State Tax Commission, 1927-1928. 3 Data from Biennial Report of the State Tax Commission, 1927-1928, except for those counties the valuation for which was changed by the State Board of Equalization. The average value for the latter counties was recomputed. TAX ADMINISTRATION 163 In Missouri land and buildings are jointly assessed. Unless extreme care is used in assessing real estate, improvements to buildings are not always assessed. While no date can be presented there is reason to believe that important internal building improvements frequently do not result in any change in the assessed valuation of the property. In the first Tax Commission Report for 1917-1918,* an example is given of a lot and two-story brick building which was assessed in 1916 at $20. The same year the property was sold for $5,000 cash. The ratio of assessed value to sales value was therefore 0.49, Probably the assessor merely had not observed the building and had recopied the valuation of the lot from year to year. Too much depends upon the initiative of the local assessors, and it would naturally be unreasonable to expect a careful appraisal of internal building improvements when assessors have been known to overlook a valuable building for a period of years. A large volume of tangible property assessable as all other personal property no doubt escapes taxation. The total value of such property cannot be estimated, and statistical evidence is lacking. It is entirely logical to assume, however, that in a system in which large numbers of motor vehicles escape taxation, many assessors do not obtain much information concerning miscellaneous forms of property. Then, too, the radical increases that at times are made during the equalization process imply that a considerable volume of such property escapes taxation entirely. l See p. 28. CHAPTER VI TAX ADMINISTRATION (CONTINUED) "N THE preceding chapter, the valuation of property for ' taxation, the equalization process, and the question of &- property escaping taxation were discussed. The present chapter deals with inequalities resulting from assessment procedure, administration of the income and other taxes, tax delinquency, and possible changes in the administrative system. INEQUALITIES RESULTING FROM ASSESSMENT PROCEDURE Attention will be directed principally to—(1) assessment of bank stock, (2) assessment of motor vehicles, and (3) variations in real estate assessments. Assessment of Bank Stock Although it is admitted that most forms of property in Missouri are assessed at much less than full value, for many years bank stock has been assessed at practically 100%. Concerted efforts have been made by the Missouri Bankers’ Association to obtain redress from what appeared to them to be unjust discrimination, and some slight relief has been obtained. The whole question, however, is still in an unsettled state. Before considering the status of bank stock assessments at the present time, the method of taxing banks prescribed by the statutes will be described briefly. The bank is required to furnish a list of the shareholders to the assessor and a statement showing the capital, surplus, and undivided profits of the bank subject to taxation. The value? of the real estate owned is deducted from the total as shown in the assessment statement, and the remainder LR. 8. 1919, Section 12775. 2 The State Tax Commission has informed the Committee on Taxation of the Missouri Bankers’ Association that in their opinion the proper basis is the actual value of the real estate and not the value as carried on the books of the bank. 4 TAX ADMINISTRATION 165 comprises the tax base. The value of the shares is assessed to the individual shareholders, but the tax is paid by the bank. Except to the extent that the bank may be able to increase its real estate deduction by an amount in excess of its book value, the tax is equivalent to a tax on the assets of the bank, other than the real estate, that are not offset by liabilities other than the capital liabilities, including surplus and undivided profits. If the real estate deduction is equivalent to the book value, the result is a 1009, assessment of the book value of the stock less the real estate, which is separately raxed. This method of taxing banks is open to objection, aside from the fact that other forms of property are not assessed at full value. The larger the surplus, the larger will be the taxes assessed against the stock of the bank. Also, the larger ‘he value of the real estate, the smaller will be the amount of taxes, for real estate is not ordinarily assessed at full value. The present method of taxation thus furnishes an inducement for a bank to keep its surplus low and its real estate investment relatively high, in order to reduce taxes to a minimum. A surplus of considerable size is most desirable as a buffer for the protection of depositors, while an unusually large real sstate investment is not generally to be desired. It is the 1009, assessment feature, however, that has aroused the most opposition. Bank statements are matters of public information, and the bank has no means by which it can “window-dress” its statement for purposes of taxation. In the face of much lower assessments for other forms of property it can hardly be contended that the 100% assessment of bank stock is equitable. In several cases, the bankers have contended for a 75%, assessment as a compromise. Although 75%, is higher than the assessment ratio for property in general, the bankers probably gauged the situation correctly in proceeding on the assumption that the most that could be hoped for was a moderate reduction of the assessment ratio and not an immediate reduction to the average level at which property throughout the state is assessed. In the Boonville National Bank! case, the bank contended that the action of the assessor in assessing bank stock at 1 Boonville National Bank v. Schlotzhauer, 317 Mo. 1298. 166 THE FISCAL PROBLEM IN MISSOURI 909% of full value, the action of the County Board of Equalization in denying relief, and the action of the State Board of Equalization in raising the value of the shares to 100%, of their true value in money, leaving other forms of property on a 759% basis, represented “a deliberate, systematic, intentional, and arbitrary discrimination against the plaintiff and its shareholders” and that it was therefore in direct violation of the uniformity and according-to-value provisions of the constitution of Missouri and of the equal protection provision of the Federal Constitution. In this case relief had been sought in a bill of equity, and the Supreme Court of Missouri was called upon to decide whether the taxpayer had invoked the appropriate remedy. The court held that the appropriate remedy had been pursued, and that the taxpayer was entitled to relief, if the alleged facts were proved. In the light of a more recent decision, it is interesting that no mention was made of appeal to the State Tax Commission as a source of relief. The decision in the Boonville case concluded with the following emphatic statement: “There is no reason why bank stock should be assessed at its full value and all other property at 75% of its full value. Such an action is not only a fraud upon the taxpayers who are thus assessed the full value of their property, but it is a violation of the uniformity and due process clauses of our State Constitution, as well as a violation of the 14th Amendment to the Federal Constitution. The substantial citizens of Missouri do not want and have not asked for this unjust discrimination as between the taxpayers of the State. Let even-handed justice be done to all taxpayers.” In the Brinkerhoff-Faris case, decided some time after the Boonville case, the Supreme Court of Missouri held, on appeal, that relief from the alleged discriminatory assessment could not be had in any suit at law, and that the bill in equity was the appropriate and only remedy, unless relief could have been had by timely application to some administrative board, and that neither of the boards of equalization was charged with the power to grant such relief! The Court held. however. that it was within the jurisdiction of the 1 BY achat Furs Trust and Savings Company v. Hill, Treasurer, etc., 19 S. W. 2d TAX ADMINISTRATION 167 State Tax Commission to grant hearings and hear evidence with respect to the valuations complained of and that, if the alleged facts were found to be true, this body would have taken action to remove the discriminations that formed the basis for the suit. This decision was surprising, particularly in view of the fact that in a previous case! involving similar circumstances of alleged discrimination the Court had held that it was “preposterous” and “unthinkable” that the statutes conferred the power to decide such cases upon the State Tax Commission. The Brinkerhoff-Faris case was carried to the Supreme Court of the United States. In the decision, rendered June 2, 1930, it was held that, while the Supreme Court of Missouri “had the power to construe the statute dealing with the State Tax Commission, and to reexamine and overrule the Laclede case,” since the court had not overruled its decision in the Laclede case until June 29, 1929, the time during which appeals could be made to the State Tax Commission on account of valuations for taxes of 1929 had expired. It was held further that at no time “did the State provide to the plaintiff an administrative remedy against the alleged illegal tax; and in invoking the appropriate judicial remedy, the plaintiff did not omit to comply with any existing condition precedent.” The judgment of the Supreme Court of Missouri in this particular case was therefore reversed on the ground that no redress had been possible. At the present time the procedure in cases of complaint concerning bank assessments is taken in accordance with the decision of the Missouri Supreme Court in the Brinkerhoff-Faris case. The banks first appear before the county boards of equalization and protest their assessments as discriminatory. Then, under the Brinkerhoff-Faris decision, an appeal has to be taken to the State Tax Commission, and finally, if the desired redress is not obtained through the Commission, action must be taken through the regular court proceedings. Unfortunately, this method does not establish any principle that can be used in assessing banks generally ‘hroughout the state. The continued protests by the bankyf de Land and Improvement Company v. State Tax Commission, 295 Mo. 298. 168 THE FISCAL PROBLEM IN MISSOURI ers serve, however, to keep the question before the public, and in view of the facts, which furnish strong support of the position taken by the bankers, it is difficult to see how adequate redress can be denied much longer. Assessment of Motor Vehicles While bank stock is relatively overvalued, the motor vehicles that are assessed for taxation are probably undervalued in many counties. In the previous chapter data for the average value of motor vehicles assessed in each county as of June 1, 1927, were presented. The average valuation per motor vehicle for the state was $192.42. When’ the data for St. Louis City and the counties in which Kansas City, St. Joseph, and Springfield are located are excluded, the average value per motor vehicle for the remainder of the state was found to be only $139.16. Assuming a 55%, valuation, the real average value would be $350 per motor vehicle for the state as a whole and $253 excluding the city and counties just mentioned. The average value per motor vehicle in a number of counties as shown by the valuations as equalized was less than $100. It is doubtful that an average value of less than $100 can be justified for any county of the state, even allowing for the fact that property valuations are on the average much less than 1009, of true value. The data for the average value of motor vehicles provide many significant comparisons. For example, the average value per motor vehicle was $204.97 for Randolph County, $155.61 for Boone County, and $122.98 for Howard County. These are adjacent counties. Numerous comparisons of this kind might be made. Differences in wealth may account for a part of the differences, but such comparisons are nevertheless suggestive. Variations in Real Estate Assessments Missouri has a large number of assessors, and the problem of supervision is a difficult one. Since the State Tax Commission was established that body has attempted to remedy the inequalities due to lack of uniform assessment standards by establishing a certain measure of centralized supervision of the local assessors. An annual meeting of county assessors TAX ADMINISTRATION 169 is held at the state capital, and township assessors meet with a representative of the Commission at the county seats. Some progress has been made toward improving conditions, but it seems certain that more effective supervision is needed. In order that the variations between counties might be studied, data concerning real estate transfers were obtained for certain years, which indicate the ratios of assessed valuation to sales value. While it is true that a particular property is not transferred sufficiently often for the selling price to constitute an absolute standard of assessment, it is also true that when a property is transferred under conditions that are not unusual its sales price can be used as a guide in determining the valuation of the property in question as well as that of adjoining properties of a similar kind. If a sufficient number of properties are transferred, the ratio of assessed valuation to sales value for a county or a city, as computed from the assessed valuation and sales value totals, should serve as definite indication that property is or is not assessed at its true value. Manufacturing plants constitute an exception. When a manufacturing plant is sold or merged with another concern, it is usually either a very successful company or a rather unsuccessful one. In the one case, the sales value might be very high as compared with the assessed value, and in the other, very low. Accordingly no manufacturing properties are included in the data here presented. The data are in the nature of statistical samples, and this limitation is taken into account in interpreting the figures. For example, it is not contended that real estate in Missouri for taxes of 1929 was assessed on the average of 55%, of true value. It is merely pointed out that a large number of real estate transfers showed an indicated ratio of 559, of true value. This difference is important, for when the sample represents a relatively small proportion of the total number of properties there is no warrant for drawing broad conclusions. Table 49 shows the results of a real estate study made by the Atchison, Topeka and Santa Fe Railway Company in seven Missouri counties in 1922. The combined data for the seven counties show a ratio of assessed valuation to sales 170 THE FISCAL PROBLEM IN MISSOURI value of 55%. Each of the counties shows a ratio of not less than 509% or more than 58%. The combined data show results that are significant, but further analysis is necessary before final conclusions may be reached. .Carroll County shows a much higher rural ratio than urban ratio. On the other hand, the urban ratio for Clark County is much higher than the rural ratio. Other similar differences might be noted. While the rural ratio computed from the combined data is somewhat higher than the comparable urban ratio, the difference is not so great as to be particularly significant. The data would seem to indicate, however, that in certain counties the same standards were not used in assessing urban and rural properties. TasLeE 49: Ratios! oF ASSESSED VALUATION TO SALES VarLuke, Rear Estate TrANsacTiONS IN SEVEN Missourl CounTiEs, 1922 Data from Atchison, Topeka and Santa Fe Railway Co. Rural Urban ! Ratio of Assessed “aluation to Sales Value Dow ans Rural and Urban Combined County Number of Transart10Nn! Ratio of Assessed aluation to Sales | Value Dar Cent Number of Trans- | actions Number of Transactions Ratio of Assessed Valuation to Sales Value Por Cent Carroll. . Clark. ...cocearnmvnes Clinton. ............. Knox.......ooveunnn. LAN. one oss 8 mmman es Macon. .ccovassnnwiss Ray.......c..ooinnn. Seven counties combined . 1 Computed from assessed valuation and sales value totals. Mn) 1? ¢3 182 aj 225 68 61 62 41 130 26 53 328 46 454 211 58 229 60 440 146 53 215 56 361 01 | 8A EX 11] 58 54 -p As a basis for further interpretation Table 50 was compiled, in order to show the variations among individual properties. The data are presented on the basis of sales value as well as number of transactions. This table shows that the distribution of the properties lacked a definite mode. The mode is the point or group of greatest density. Since the ratio computed from the combined data was 55%, one might expect to find a heavy concentration of both sales value and TAX ADMINISTRATION 171 Tasre 50: DistrisuTioN oF Rear Estate TRANSACTIONS oN Basis oF THE RATIO OF ASSESSED VALUATION TO 5aLEs VALUE, SEVEN Missourt CounTiEs, 1922 Source: Data from the Atchison, Topeka and Santa Fe Railway Company Computed by National Industrial Conference Board TC Diceribution Commlative Distribution Ratio Group Per Cent Num- | Per ber of [Cent | Sales Trans-| of Value actions] Total Per Cent of Trent Ratio Group Per Cent cure’ operty 120 and over..! 36! 4.6] $57,811] 1.2} 120 and over (10to119..... 11 14' 19,850, 0.4 110 « 100t0109....] 18.2.3 56276/ 1.1 100 « 90to 99....1 35 4.5 106,180] 2.1 90 80to 89.... 66 8.4 369,678] 74 80 70te 79.... 38 11.3 558926112 70 50to 69.... 130 16.6 852,165]17.1 60 50to 59.... 52 19.5 1,043,895120.9 50 40to 49.... '24 15.9 854262[17.1 40 “ 0to 39....] 70 9.0 3593,43711.9 30 « 0t0 29....| 3646 403470{81 20 « Oto 19....] 10] 13 5867512 "0 « Oandless..! §'0& 15180103 or «¢ * £49,758] 1.9° 43,460 1.7 43,625| 1.7 58,193| 2.2 122,071] 4.7 157,614] 6.1 257,835] 9.9 446,756/17.2 511,779|19.7 457,904/17.6 282,108/10.2 113,054] 4.3 56,2251 2.2 chen 120 and over. 98 6.9' 110to119.... 34 27 (00t0109.... 37 29 90to 99.... 48 3.7 80to 89.... 74 5.8 70t0 79.... 98 7.7 60to 69.... 152 '°.9 50to 59.... 202 5.8 40to 49.... 195 15.3 30t0 39....0 180 1. Wto 29....1 111 8.7, 10to 19....| 237]29, 9 and less. 21 111A roperty 120 and over 110 « « 100 “" [11 90 LC «© 80 (13 £4 70 £° £" £0 £€ [{} 50 “ I] 40 € i" 30 £¢ (13 20 i“ ‘xc 10 e [11 Ea } & [11 120 and over. . 110 to 119... {00 to 109.... 90to 99... 80to 89... 70to 79... 60to 69... 50to 59... 40to 49.... 30te 39.... 20to 29.... 10to. 19....] 9 and less. Rural and T” han Property 60 $107,569] 1.4" 120 and over 22, 63,310, 08 110 © © 2.7 99901} 1.3 100 “ 40 164373}22 0 “ 6.8 491,749| 6.5 80 “ 9.0 716,540, 9.4 70 13.7 1,110,000{146 60 * 17.2 1,490,651{19.7 0 “ 15.5 1,366,041(18.0 40 2.2[1,051,341113.9 30 « 7.1] 685,578 9.0! 2 “0 “ 2.31 17,729{ 23 10 “© © 1.2 71.40% C = EL 124 45 55 83 40 86 182 354 319 270 6 YY Num-| Per | Per ber of | Cent Sales Cent Trans-| of Value of actions| Total Total 361 4.6! $57,811] 1.2 47 60] 77,661] 1.6 65 8.3] 133,937] 2.7 100 12.8 240,117) 4.8 166 21.3] 609,795 12.2 254 32.5[1,168,721 23.4 384 49.2/2,020,886, 40.5 536 68.6/3,064,781| 61.4 660 84.53,919,043| 78.5 730, 93.5/4,512,480| 90.4 766 98.114,915,950| 98.5 776| 99.4(4,974,625] 99.7 781 100.014,989,805|100.0 88) 6.9] $49,758] 1.9 122) 9.6 93218] 3.6 159 12.5, 136,843] 5.3 207 16.2 195,036] 7.5 281 22.0] 317,107 12.2 379 29.7] 474,721 18.3 531 41.6 732,556] 28.2 733 57.4(1,179,312| 45.4 928 72.711,691,091 65.0 1,108 86.8|2,148,995 82.6 1,219 95.5[2,431,103| 93.5 1,256 98.4{2,544,157| 97.8 © 977 00 N22 _600.3821100.0 124! 169 224 307 447 633 915 1,269 1,588 :,838 1,985 7,032 TONE” 6.0 $107,569] 1.4 8.2| 170,879] 2.2 10.9] 270,780] 3.6 14.9] 435,153] 5.7 21.7 926,902] 12.2 30.8}1,643,442| 21.7 44.5(2,753 442] 36.3 61.74,244,093] 55.9 77.2{5,610,134 73.9 89.3|6,661,475| 87.8 96.5{7,347,053 96.8 98.77,518,782| 99.1 ANCL R00 197 ToN,0 172 THE FISCAL PROBLEM IN MISSOURI number of transactions in the 50%, to 59% group. Such is not the case, however, for only 17.29, of the total number of transactions showed ratios of not less than 509%, and not more than 599, and only 19.79, of the total sales value was accounted for by the 354 transactions that showed ratios of 509% to 59%. The cumulative data are particularly enlightening. For example, about 10.9%, of the total number of transactions showed ratios of 1009, or more, and almost 90%, showed ratios of 309, or more. That the properties which sold at high ratios of assessed valuation to sales value were in general of small value is clear from the fact that only 3.6% of the total sales value of all properties was accounted for by those properties with ratios of 100%, or more. Although the 1929 data, presented in Table 51, are more significant than any other data that might be presented, before considering the compilations based upon the 1929 statistics mention should be made of sales value studies made by the Taxation Committee of the Missouri Bankers’ Association. In both 1923 and 1925 data were compiled for a large number of counties, the volume of transactions in the former year being 1,013, and in the latter,936. The ratios of assessed value to sales value computed from the aggregate data were 56.5%, and 589, respectively. These ratios tend to confirm the representative character of the 1922 sample taken from seven counties, since in 1925, for example, the Missouri Bankers’ Association data included sales transactions in 100 counties. The ratios computed from the aggregate data thus far considered were 559, for 1922, 56.59, for 1923, and 589, for 1925. It is significant, therefore, to find that the 1929 ratio of assessed valuation to total sales value computed from the totals for thirty-nine counties is 55%. On the basis of the four studies it seems safe to conclude that real estate in Missouri has been assessed on the average at about 55% of its sales value. It is admitted that special factors, such as the terms of the sale and the fact that certain properties sold under unusual conditions could not be eliminated in compiling the data, influence the ratios to some extent. TAX ADMINISTRATION 173 Nevertheless, the evidence seems to support the validity of an average ratio of approximately 55%. The data for 1929 shown in Table 51 indicate wide variations among the several counties. While the ratio computed from the combined data for thirty-nine counties is 559%, the ratios for individual counties range from 319% for St. Louis County and 36%, for Lawrence County to 729, for Pettis County. Although miscellaneous factors may have influenced the sales price, they could not account for such extreme variations. It can hardly be contended that the same standards of assessment are used in these counties, particularly when it is considered that an independent study made by the Missouri Bankers’ Association in 1925 showed ratios of 389, for Lawrence County and 789, for Pettis County. Other comparisons might be made, but they would serve only as corroborative evidence. When two independent studies show results so closely similar, there can be little doubt concerning the validity of the data. Although on the whole rural properties show higher ratios than urban properties, this is not uniformly true for all counties. Not all sales under unusual conditions could be eliminated from the data, and a factor such as this may account in part for the higher rural ratios for some counties. It is doubtful, however, that it could account for the wide difference between rural and urban ratios for certain other counties. Table 52 is a derivative table compiled from the same data used for Table 51. Again, there is no heavy concentration in the 50%, to 59% group. Only 17.2% of the total number of properties showed ratios between these limits, and only 20.8% of the total sales value fell within the 50% to 59% group. As in the case of the 1922 data, a large number of properties show ratios of more than 90% and less than 20%,. The extreme ratios in general are accounted for by relatively small properties. Charts 5 and 6 show the cumulative data in the lower part of Table 52 in graphic form. Thus, Chart 5 indicates that 4.49, of the total number of transfers show ratios of 100%, and over, that 59.39, of the total number of transfers show ratios of 509, or over, and that 1009 or all properties show 174 THE FISCAL PROBLEM IN MISSOURI TaBLe 51: RaTiOs OF ASSESSED VALUATION TO SALES Varve, Real Estate TransacTiONS, THIRTY-NINE Missour: Counrigs, 1929 Compiled and computed by National Industrial Conference Board Urban | Burst and Urban 'ombined County Adair. ...... _— Audrain.............. Boone. ......ooouvunn. Buchanan........... Caldwell. . 195 Callaway... ........... Carroll. .........c..0 Chariton . ............ Christian. ............ Clav Sie Clinton. .....ovenenn. Cole....oovevnennnnn. Franklin............. Green. «ovum: snvns Howard. . - Jackson. . ce Jasper....... cc... Jefferson. ....ooovnn. Lafayette. ........... Lawrence - Swf Linn. .ooviineinnnnen. Madison. .....oveuee Montgomery. ......... Newton. ............. Nodaway............. Pettis. ..... sued Pie. ...ov ianivnesss Platte. ..........c.... Ralls................ Randolph. .. Ray...... ava vies St. Charles. .......... St. Francois. ......... St.Louis. ............ St. Louis City ........ Saline........ ....... Taney. ..ooveveenen.. Vernon............... Worth. . . Cea. Thirty-nine counties combined. Number of Trans~ actions Ratio of Assessed Valuation to Sales Value Par Cent t4 49 43 58 66 | 63 *7 9 6 21 4 53 63 62 45 50 74 “4 2 ¢1 217 58 41 50 42 £1 50 14 9 30 24 42 39 45 61 11 44 20 x7 25 43 64 31 73 47 £4 24 75 39 66 ‘2 70 34 61 4a 66 29 17 52 77 23 24 38 15 62 43 38 ki 63 38 51 AR " IQ4 ~ Number of Transactions Ratio of Assessed Valuation to Sales Value Dar Cant Number of Transactions 47 ? 59 a3 39 54 42 64 0) 93 88 !5 48 60 51 59 | 50 57 10 47 50 47 85 101 a< 41 09 ¢1 61 63 66 ! 79 49 50 43 37 S(} 65 85 75 107 £9 50 28 68 49 13 2 a 24 is 12 100 42 77 79 09 44 17 47 16 47 a2 t5 ‘4 42 2 28 “7 4 1 90 35 28 35 2 48 65 £5 6 64 £9 59 67 ~~ 5 01 40 63 33 | 19 04 RS 7 58 30 24 <9 "M 5 6 4 [A] 58 48 46 73 83 33 99 26 61 PL nn] a Qe Ratio of Assessed Valuation to Sales Value Per Cent ) “ ol Ln £7 £0 ¢ 45 40 J ¢7 43 *9 5) 53 I £ é ¢-45 54 72 65 79 62 40 | A3 2.4 23 31 “4 60 41 49 £9 “8 TAX ADMINISTRATION 175 TasLE 52: DistriBuTioN oF REAL Estate TRANSACTIONS oN Basis or THE Ratio oF ASSESSED VALUATION TO Sars VaLug, Tuirty-NINE Missour: Counties, 1929 Computed by National Industrial Conference Board Cumulative Distribution Ratio Group Num-| Per Per Per Cent | ber 5) Cent Sales | Cent Trans-| of Value of actions| Total Total Rural Property [20 and over io (10to119.... 6 100t0 109..., 39 9to 99... 78 80 to 5.0] 141 70to 79... 49 50to 69... 62 50to 59... 219 40to 49...| 177 0to 39...] 151 Wto 29... 99 i0to 19... 5° 9 and less.! 10 0.5 3.0 6.0 10.9 1.5 12.5 .6.9 13.7 11.6 74 ” 0.8 $1833 36,6781 1.6 97,166; 1.7 344,543! 6.0 502,466{10.5 $65,998]11.6 370,022|15.3 002,366(17.4 793,272|15.¢ 718,744{12" 353,508] 4 159,765] * 252207 "Nang ove WU (13 “ ou) £ <5 ~ I «” ic 3} tc re aT % Lk ye ) ie ) 4 0 - « 6 I) . oe [ oe € of 4s 136] 10.5 77] 21.4 126] 32.9 588| 45.4 807| 62.3 984 76.0 ,135 87.6 ,234| 95.2 1286] 99.2 96! 100.0 olodoc 03 55,0161 0.9 152,182] 2.6 496,725; 8.6 1,099,191 19.1 1,765,189" 30.7 2.641.211 46.0 3,643,577] 63.4 £,436,849! 77.2 5,155,593] 89.8 5,509,101] 95.9 ee 98.7 3744.068100.0 Urban Property 120 and over (10 to 119... 100 to 109.. .: 90to 99...) 80to 89... 70to0 79... 50to 69.... 0to 59... 40to 49... 30to 39... to 29... 10 to 19.) 9 and less. 39 63 131 "51 17 284 269 =n o4 2.4 3.9 8.0 9.9 3.3 [7.4 { [Hn 021,25! 5,158) Ju} 35,348) 0.7 121,679] 2.6 239,977] 5.0 4452521 94 491,154{10.3 182,832(24.8 971,156{20.4 717,88401 + 337,70¢ ‘22,1 32.6361 1 20 and aver 10 4 “€ 00 «© ie 90 £€ h °0 © * - Db] « 6 . J £< fc 50 « 11] £0 [1] «< kK] £C €«@ = 3 [1] 3 cc sal Lo 72! 44 135] 8.3 %6 16.3 127] 262 644] 39.5 928] 56.9 1,197] 73.3 430 27.6 564 95.¢ 518] 5.” Lan nn DLLLEL 26,443 61.791, 183,470) 423,447) 868,699 1,359,853 7542685 7513.84] £231,726 4.589.523 711,630 -r mt a 0.6 Lo 3.8 29 .8.2 28.5 33.4 73.7 38.8 96.3 28. Ang Rural and Urban Property 120 and over 110t0 119... 12 100 to 109...| 78 90to 99... 141 | 80 to 89...| 272 70t0 79...| 310 50to 69... 379 50to 59...| 03 0to 49...| 146 30to 39...| 384 to 29...] 33 Oto 19... 106 | Qandless! 727 ' nc 209,625 .. 0.4 41,836] 2.4 2.7 132,514 1.3 4.6 466,222 4.4 9.3 342,443 8.0! 0.6. ,111,25010.6 2.9 ,367,176/13.0 7.2,2,185,198/20.8 211,764,428]16.8 1711,436,628(13.7 | 711,306| 6.7 av 1 281.880] 2.7 127.838) 1+ ‘and oo 210 Cc te 100 «© ‘ Ww) ©$ 0 9 “ 13 ") ct ie 3 © is 3 ©® 0 hb) && i a0 < z0 << £¢ : 52 130 71 743 853 20 1735 1181 1,565 1.798 904 2906 rot 0d u. 1.8 81,459 0.% 44) 213973 2.0 9.3] 680.195 6.5 18.51 1,522,638 14.5 297 2633888) 25.1 42). £001,064] 38.1 59.3] 6,186,262 58.9 74.5] 7,950,690] 75.7 87.6] 9,387,318} 89.3 95.6(10,098,6241 96.1 99.2(10.380,504 98.8 '00.0110.508.342 100.0 176 THE FISCAL PROBLEM IN MISSOURI ratios of 29% and over. Chart 6 should be similarly interpreted, except that the cumulative distribution is on the basis of sales value rather than the number of transactions. Tare 53: RaTiOs OF ASSESSED VALUATION TO SALES VaLug, Crry Lots 1v CoLumsia, Missourt, 1910-1914 AND 1923-1928 Source: McLean E. E.: The Ratio of Assessed Value to Sale Value of Real Propertv in Boone County. 1910-1914 and 1923-1928 Year 1910. ..... J § SA ~ 1910-19014 1923. . 1924. . 25... 6. 27, 1992¢ 1923-192¢ Lasser ene Number of Transactions . 276 213 236 743 217 1.185 335 281 265 222 162 17 a) ot Ratio of Assessed Valuation to Sales Value Per Cent 24 bo 24 27 27 oF 55 ol 49 44 g1 Another aspect of the problem is variations within the same city or county. Data for only one city will be considered in this connection.! A few years ago Mr. Elgin E. McLean made a careful study? of property transfers in Boone County, in which the City of Columbia is located. The data for Columbia provide an excellent basis for studying variations from time to time as well as among the several sections of the same city. Table 53 shows the number of transactions and the ratios of assessed valuation to sales value for each year for real property transfers in Columbia during the periods 1910 through 1914 and 1923 through 1928. The ratios for individual years as computed from the assessed valuation and sales value totals increased during the former period and 1 Similar rural data for Boone County are presented in Chapter VIL 2 The Ratio of Assessed Value to Sale Value of Real Property in Boone County, 1910-1914 and 1923-1928. An unpublished Master’s thesis prepared at the University of Missouri. TAX ADMINISTRATION Cuart 5: Cumurative DistrisurioN oF 2,928 ITEMS oF UrsaAN AND Rural ProrerTY IN 39 Missourr CouN-TiES ON THE Basis oF THE RaTio oF ASSESSED VaLvaTioN TO SALES VALUE, 1929 ASSE SALE PER © 15: AIO 13 TO 3 14 > ( ; i’ mrestssesormalpg—r AE Sint ieee imi peice v av 30 40 50 60 70 80 90 100 PER CENT OF TOTAL NUMBER OF {TEMS declined during the latter, indicating changes during comparatively brief periods. While the ratio computed from the combined data for the years 1923 through 1928 was found to be 539%, the ratio for 1923 was 55%, and that for 1928 was 449. The ratios for the intervening years showed a 178 THE FISCAL PROBLEM IN MISSOURI Cuarr 6: CUMULATIVE DISTRIBUTION OF THE SALES VALUE oF 2,928 Items or RuraL AnD UrBAN PROPERTY IN 39 Missourt CouNTIES ON THE Basis or THE Ratio OF ASSESSED VALUATION TO SALES VALUE, 1929 RATIO ASSESSED TO SALES VALUE PER CENT 120 100 3n R A 3 Do 30 49 50° 60 tu BO LJ uw PER CENT OF TOTAL SALES VALUE gradual decline, which became more accentuated towards the close of the period. On the other hand, the ratios for the earlier period showed a tendency to increase, although the variation from the average was less marked. Of course, even when a large number of properties are involved, it is too TAX ADMINISTRATION 179 much to expect that the assessor’s valuations will in the aggregate form a uniform percentage of total sales value from year to year. Nevertheless, this result was closely approximated in Columbia during the earlier period. Tare 54: Ratios oF AsSesseD VALUATION TO SALES VaLug, City Lots 18 SpeciFiep Divisions or COLUMBIA, Missouri, 1923-1928 Source: McLean, E.E.: The Ratio of Assessed Value to Sale Value of Real Property in Boone County, 1910-1914 and 1923-1928 Bank’s Subdivision of Garth...... Bouchelle Addition. ............ Guitar-Park Addition. .......... Northern Addition. ............ Nowell’s Addition. ... Curie Original town ....ovevi vuonn on Pannell Place. .... os Smithton Addition. ..... ... . University Addition. . - Westwood Addition. . Number of Transactions Average Sales Value $1,107 : 4598 00 | 1,058 7 3.218 ' 1,803 5,853 1735 ans 5,202 3.0 0 Average Assessed Valuation p465 2,737 503 1.350 802 2,885 “56 wY7 1 36 Ratio of Assessed Valuation to Sales Value Per Cent 7 From time to time the City of Columbia was enlarged by a number of additions. The ratios of assessed to sales value for several additions and for the original town! are shown in a tabulation in the Boone County study. Table 54 is an adaptation of this tabulation. For the period 1923-1928, 105 sales in the original town showed a ratio of 49%, while at the extremes were the Smithton Addition, with a ratio of 3497, and the Bouchelle Addition, with a ratio of 60%. The low average values for the Smithton Addition no doubt indicate that a large proportion of transfers represented lots on which buildings had not been constructed. The most significant fact disclosed by this table is that, although the ratio for a city over a period of years may not change very much, it does not follow that property is assessed on a uniform basis throughout the entire city. Certain factors are constantly tending to increase property values in one part of a city, while values in another part remain practically constant or 1 Not all sections of the city were included. Only those showing a considerable number of transactions were used. 180 THE FISCAL PROBLEM IN MISSOURI tend to decline. No assessor, however capable, can appraise the numerous factors affecting values in the several sections of a city with such a degree of accuracy that absolute uniformity can be obtained. The best that can be expected is a minimum of variation. TaprLe 55. RaTios oF AssSesSED VALUATION TO SALES VaLrug, Crry Lots 1x CoLumBia, Missourt, wiTH Lots CrassIFIED ACCORDING TO SALES VaLug, 1923-1928 Source: McLean, E. E.: The Ratio of Assessed Value to Sale Value of Real Property in Boone County, 1910-1914 and 1923-1928 0p 999 $1,000- 3,999. 4.000~ 6,999 7.000- 9,999. 10,000-12,999 3,000-15,999 16,000-18.999. 19,000 and ave 1§39 ~rn Sale Price Number of Transactions 202 594 202 ~n Sales Value $186,520 1,162,355 1,039,630 775,630 Ann a) Assessed Valuztion $94,955 603,805 550,074 557,508 260,754 44,850 25.200 ‘NL A160 Ratio of Assessed Valuation to Sales Value Per Cent ''52 L ss 51 a Another form of variation considered in the Boone County study involved a comparison between the more valuable and the less valuable properties. Table 55 shows the results of the investigation of this form of variation in Columbia properties. The more valuable properties were found to be assessed at a lower proportion of sales value than were properties of small value. Thus, 322 properties sold at prices between $4,000 and $9,999 showed a ratio of 559, while 53 properties sold at prices between $10,000 and $15,999 showed a ratio of 519, and 11 properties sold at prices between $16,000 and $38,000 showed a ratio of 44%. There are several reasons why an assessor might be inclined to assess the larger and more valuable properties on a lower basis. Knowing the tax rate of former years, he is impressed by the large amount of taxes that will be levied against a valuable property. The owners of large and valuable properties, moreover, are usually people of considerable 1 Compare Table 75, showing a similar tabulation of farm properties in the same county according to acreage. TAX ADMINISTRATION 181 influence, whose support is desired by the assessor, particularly when he is an elected official. It is not claimed that these factors were operative in the City of Columbia. It is possible that the results shown in Table 55 are more or less accidental, particularly when it is considered that farm properties in the same county showed an opposite tendency. Several factors may be cited in explanation of the local differences among the ratios of assessed valuation to true value for real estate. In the first place, real property assessments in Missouri involve the joint valuation of land and buildings. In very few cases in the same county is the actual distribution of total value between the land and the buildings the same, except possibly in the case of blocks or rows of houses in urban communities. Even in the latter there would be some variation resulting from differences in improvements. Furthermore, it is possible to appraise some properties much more easily than others. An assessor who is or has been a farmer is naturally better qualified to appraise the value of farm lands than the value of manufacturing and other urban properties. The correct valuation of manufacturing properties involves considerable engineering knowledge, and it is doubtful if on the average they are appraised with a degree of uniformity comparable with that found in the case of urban residential and rural properties. Moreover, rapidly shifting real estate values give rise to discrepancies. The factors affecting real estate values are numerous, and a correct appraisal of the influence of each factor is a practical impossibility. Another factor applicable in Missouri is the fact that the law calls for assessment according to true value in money. This implies a 1009, assessment, but in practice the average appears to be only about 55%, and it follows that the most the assessors can do is to establish some standard of value at a level far below 1009, of true value. If an assessor in any locality should make his valuations on the basis of even 959%, when the average for the state was between 50%, and 60%, it is doubtful that he would retain his office very long. The result of such an assessment would be a larger contribution to state property taxes than could be justified. 182 THE FISCAL PROBLEM IN MISSOURI After all, probably the most important factor is the incompetency of certain assessors. ‘‘The greatest inequalities and the most pronounced tendencies toward retrogression in equalization are found at the local assessor’s point of contact with property.” Not only do assessors frequently lack the requisite qualifications for the tasks involved, but also the manner in which they are compensated tends to encourage hasty and, therefore, superficial assessment. When no continuous supervision by a higher authority is provided, the results may become very unsatisfactory. Discrepancies in assessments naturally affect the value of the properties concerned. If over a period of time one property is underassessed as compared with other properties of a similar kind, that property will naturally sell at a premium. To the extent that taxes are capitalized the underassessment will be reflected in a higher selling price, unless the purchaser has reason to believe that there 1s likely to be a readjustment in the assessed valuation that will place the property on the same level with other properties. ApMINISTRATION OF INcoME Tax AND OTHER TAXES The Missouri general income tax law was first enacted in 1917. The Federal Revenue Acts and the model income tax law proposed by the National Tax Association were apparently used as a guide in drafting the Missouri law and the later amendments. Missouri has not established complete central administration of the income tax, although the legislature has from time to time enacted new statutes or amendments that have given the State Auditor more control. The amendments enacted in 1929 have apparently given him almost complete control. At the present time he has the power to increase the assessment and to allow a credit in case of overpayment. Appeals have been definitely provided for, and the courts may now pass on questions of fact as well as questions of law. Unquestionably, the grant of this authority to the courts will be most beneficial from an administrative stand-1 Englund, Eric, Assessment and Equalization of Farm and City Real Estate in Kansas, Kansas Agricultural Experiment Station Bulletin, No. 232, p. 3. TAX ADMINISTRATION 183 point, since the decisions will constitute precedents that may be applied at a later time. The trend of developments that resulted in giving practically complete control to the State Auditor extended over a period of twelve years. Even as thus improved the form of administration is not generally regarded as satisfactory. In the beginning the enforcement of the law was left to the local assessors, which meant that the law was subject to as many interpretations as there were assessors. In 1924 the State Tax Commission claimed that it had certain authority in connection with the income tax, particularly to examine and inspect the returns on file in the assessors’ offices, but the Supreme Court of Missouri held that the powers of the Commission relating to general supervision over assessments did not extend to the income tax and that it had only general supervision over assessments for property taxes! The effect of this decision was to preclude the possibility of securing any increased efficiency through the supervision of the State Tax Commission or its agents. In 1925 the law was amended to authorize the State Auditor, agent, or inspector to examine the income tax returns on file in the office of any local official. While some improvements in administration have been effected by granting additional power to the State Auditor, the system of local assessment and collection has remained basically the same. Assessments are made by local assessors, and the income taxes are collected by local collectors under the general supervision of the State Auditor, who furnishes the necessary forms and promulgates regulations concerning the manner in which the statutes are to be interpreted. Notwithstanding the control that has been given to the State Auditor, a system of income tax administration that involves the degree of decentralization found in Missouri can hardly be regarded as desirable. In other states decentralization has been found wanting in many respects, and centralization ‘has been established. Missouri is unique among income tax states in that a decentralized system has been continued for a considerable period of years? In t State ex rel. v. Crawford, 303 Mo. 652, 262 5. W. 341. ? For discussion and tabulations of systems of state income tax administration in income tax states, see National Industrial Conference Board, State Income Taxes, Vol. 11, pp. 127 ff. 184 THE FISCAL PROBLEM IN MISSOURI Virginia the tax is locally assessed, but central supervision is exercised to some extent by the State Tax Commission. The Missouri income tax law provides for information at the source. Individuals or corporations making payments of fixed or determinable income of $1,000 or more to a single person or $2,000 or more to a married person in any tax year, to taxpayers who are taxable according to the income tax statutes, are required to make a return to the State Auditor showing the names and addresses of such taxpayers and the amount of the payments in each case.! Dividend payments must be reported if $100 or more. Such returns must be made on or before March 1 for the preceding calendar year. The income tax law carefully guards against the disclosure of information contained in the returns filed and forbids the use of such returns in any manner whatever in connection with assessments for the general property tax.? The assessors or other officials who are charged with the custody of the returns are required to turn them over to the collector after three years have elapsed from the time the taxes became due, and the collector is required to destroy them, except in cases in which the tax has not been paid. Discussion of other administrative features of the income tax, such as allocation, the procedure followed by the State Auditor in questioning assessments, and the system of appeal to the courts, is omitted, as it would involve undue expansion of this section. The inheritance tax is administered by the probate courts, and the probate judge receives a fee of 2149, of the tax. Collections are made by the State Treasurer. The corporation franchise tax is administered by the State Tax Commission. Corporations liable to the tax are required to make an annual written report on such forms as 'R. S. 1919, Section 13108, as amended by Session Laws, 1927, p. 478, and Session Laws, 1929, pp. 429 f. , ?R. 8. 1919, Section 13135, as amended by Session Laws, 1925, p. 370. 8 R. S. 1919, Section 13136, as amended by Session Laws. 1925, p. 370, and Session Laws, 1929, p. 423. 4 Complete information concerning the many and varied aspects of administration is available in State of Missouri, Income Tax Law and Regulations, corrected to August 27, 1929, compiled by L. D. Thompson, State Auditor. TAX ADMINISTRATION 185 may be prescribed, and the report must be sworn to by a responsible officer of the corporation. The State Tax Commission determines the amount of taxes due and reports the amounts to the State Auditor. The latter makes out a tax bill against each corporation and delivers it to the State Treasurer, who is charged with the duty of collecting the tax. The incorporation tax on domestic corporations and entrance fees or taxes on foreign corporations are under the jurisdiction of the Secretary of State. Although payments are remitted to that official, the remittances are made payable to the State Treasurer. The foreign insurance company tax is administered by the Superintendent of the Insurance Department. One half of the proceeds of this tax is apportioned to the counties, and the disbursement of this portion is made under the jurisdiction of the State Auditor. This half of the receipts is transferred to the county foreign insurance tax fund and then disbursed to the respective counties. The other half of the receipts from this source is transferred to the general revenue fund. The express company tax is administered by the State Auditor. Annual reports are made to that official, and the tax is assessed by him. Collection of the tax is made by the State Treasurer. The gasoline tax is administered by the State Inspector of Oils, and motor vehicle licenses are administered in a division of the department of the Secretary of State which is under the direction of a Motor Vehicle Commissioner. Collection of the gasoline tax is made by the State Treasurer, while motor vehicle license collections are made by the motor vehicle license department, which has branch offices throughout the state. Receipts from the latter source are transferred to the State Treasurer. Receipts from both sources, after deduction of collection costs and certain other charges, are credited to the state road bond interest and sinking fund. Miscellaneous business licenses levied by the state are in some cases assessed and collected by state departments and in other cases are administered locally. Hotel and dairy 186 THE FISCAL PROBLEM IN MISSOURI licenses are examples of the first category, while brokers’ and peddlers’ licenses are examples of the second. CoLLECTORS AND Tax DELINQUENCY There is an elected county collector in each county not under the township form of organization. In counties having township organization the county treasurer is ex-officio county and township collector. In cities of the first class taxes are collected by the comptroller, and in those of the second class, by the commissioner of revenue. There are city collectors in cities of the third and fourth classes. The duties of the county collectors are not confined to the collection of county or other local taxes. They are charged with the collection of the state general property tax, the state income tax, and certain state license taxes. The county collectors are required to furnish an annual statement to the State Auditor. This statement is nothing more than an itemized account showing all debits and credits on account of state taxes. The principal credit item is treasurer’s receipts, which represent the total remittances made to the State Treasurer during the year. The annual statements of the collectors provide information that can be used in studying delinquency. They show the original debits on account of state taxes, entries on account of errors, overassessments and underassessments, as well as delinquent taxes, with the result that the percentage of delinquency can be computed on a corrected base. This procedure has been followed in compiling Tables 56 and 57. The data in both tables indicate the ratio of delinquency in each county computed on the basis of the maximum amount, exclusive of interest, that the state could expect to be collected on account of taxes for a given year, which is a different aggregate in most cases from the total of the original debits. Because of the large number of calculations involved it was decided to include in the study only the counties in which the large cities of the state are located, St. Louis County, the northwestern counties and the southeastern counties. The northwestern counties probably show a better record of collections than those in any other part TAX ADMINISTRATION 187 of the state, while most of the southeastern counties show a poor record. Probably the most striking feature of Table 56 is the large percentage of delinquent state property taxes in St. Louis County, St. Louis City, and the counties in which Kansas City, St. Joseph, and Springfield are located. St. Louis County had a particularly high percentage of delinquency for taxes of the three years covered by the table. In fact, the average for the three years is higher than the average of the three ratios for the southeastern counties as a group. St. Louis City showed a better record for taxes of 1923 and 1927 than any of the other four counties in group I, while for taxes of 1925 Jackson County had the lowest percentage of delinquency. While only two of the delinquent property tax ratios for group I, those for St. Louis City and Jackson County for 1923, were less than 10%, only one county in group II had a ratio of more than 10%, for any of the three years. The group II ratios were 5.1%, for taxes of 1923, 5.6%, for taxes of 1925, and 6.59, for taxes of 1927. In other words, it appears that the proportion of state property taxes collected before the penalty date is declining even in the section of the state in which the delinquency problem is least serious. The state property tax delinquency problem appears to be most serious in the southeastern counties of the state. In New Madrid County 33.19%, of the net state property tax levies of 1927 became delinquent, and for the group of twelve counties the delinquent state property taxes were equivalent to 20.7% of the total. For taxes of 1923 and 1925 the delinquency ratios were 16.3% and 16.2%, respectively. This indicates a serious condition. When only about 80%, of a levy is collected, it must follow that the government levying the tax will be handicapped in carrying out its fiscal program unless allowance is made for a high rate of delinquency when the tax is levied. Of course, a considerable proportion of delinquent taxes may be collected in succeeding years, but an element of uncertainty is nevertheless injected into the fiscal affairs of the government that is faced with an increasing amount of tax delinquency. Table 57 shows the income tax delinquency ratios for the 188 THE FISCAL PROBLEM IN MISSOURI TasLe 56: DEeLiNQUENT StaTE Property Taxes! In SeLecTED Counties oF Missourt, Taxes or 1923, 1925, AND 1927 Source: County Collectors’ Statements in Biennial Reports of the State Auditor Computed by National Industrial Conference Board Countv Per Cent Delinguent T axes Were of Net Charges to County Collectors Taxes of ICE I RE CT Group | St. Louis City. ..... St. Louis County. ................. Jackson. ..cenccissiinnniisssanaas Buchanan........ Greene. . . . 16. 9.8 164 1 11.2 177 2 1.4 13.0 11.4 i. | Group IT: Northwestern Countie~? Andrew. ... Atchison. ... Caldwell. .. Clay...... Clinton. ... “7 Daviess. ......... De Kalb. ... Gentry..... Harrison. . . Holt. .......... Nodaway.... Platt. . ss vv wns op 5 «3 swans Ray....... Worth. . All northwestern counties” EA nq vy 7 a 1 ty 6.5 Group III: Sor+heastern Counties Bollinger... . Butler. ............ Cape Girardeau. . . .. Dunklin........ [ron.,.......... Madison. ........ Mississippi. ..v..o... New Madrid. ............. Pomnigont. . ccorvssnnisisrsas SCOtt. vt ereiiiinennaaneess Stoddard. ............cciiiiinn Wayne. ..... .. 21 4 14.8 6.5 12.6 23.0 20.0 22.8 | 17.6 16.5 pt Th 7 ° 12.0 20.1 20.4 20.2 | 17.8 13.0 14 T 30 8.9 23.7 8.0 11.4 24.7 33.1 21.0 19.2 22.8 16.7 All southeastern counties. ... . t Delinquency figures in this table are expressed as percentages of net charges ta county collectors. Net charges to county collectors computed as follows: To the original charges were added “errors and additional assessments’ which increased the total debits; from the latter total were deducted all errors and erroneous assessments which resulted in credits. 2 Excluding Buchanan. 8 These figures computed from combined data; they are not averages of county delinquency ratios. TAX ADMINISTRATION 189 TasLE 57: DeLinQueNT StaTE INcomE Taxes! IN SELECTED Counties oF Missouri, Taxes or 1923, 1925, axp 1927 Source: County Collectors’ Statements in Biennial Reports of the State Auditor Computed by National Industrial Conference Board Per Cent Delinquent Taxes Were of Net Charges to County Collectors Taxes of 1925 | - 17 Group I St. Louis City. ...... .cvennn ou St, Louis County. ......oooovuvnn .. Jackson. .......cooviiiiiiin Buchanan. ..... Greene. . . ) Wy J 3.5 | 45 59 DA 9 6.0 | 57 0.1 1 Group II: Northwestern Counties? Andrew. .. Atchison. .......... Caldwell. . . Clay. .... Clinton. . . Daviess. ......... De Kalb. . Gentry. .. Harrison... ... Holt. .......... Nodaway. .... Platte. ....... Ray...... Worth... All northwestern counties?. . .... J.2 D.4 0.8 0.1 0.2 0.18 J) i 2.8 4.0 | 0% 1.2 J.1 3.3 97 Group III: Southeastern Counties Bollinger............ Butler. .....oovviiii iii Cape Girardeau. ..... ............ .. Dunklin........ ee lron............ B35 Madison. .......... nd Ede hE BE Mississippi... ... oh New Madrid. .... Cees Pomlsot wen isos ss muna sree wm BOO. vv vbirsiiiinssn een Stoddard. ........... I Wayne. ... All southeastern counties. . . .... 1 See footnote , Table 56. t Excluding Buchanan, 1 See footnote 3, Table 56. 0.5 0.4 15 5.2 0.1 2.5 2.9 2 oN J. 1.4 1.7 2.2 AN 3 3.2 7.9 2.2 D.5 4.2 2.5 1.6% 190 THE FISCAL PROBLEM IN MISSOURI same groups of counties. Delinquency in the case of this tax does not appear to be a serious problem. It is probable that the higher ratios for the group I counties are accounted for in part by contested items on which decisions were not reached prior to the date on which the taxes became delinquent. Also, the income tax in Missouri is largely an urban tax, and this may account in part for the higher ratio of delinquency in those counties in which the largest cities are located. It is significant that there is no income tax delinquency in certain years in many of the northwestern and some of the southeastern counties. The income tax assessments in many of these counties are not large. Also, the income tax is payable much earlier in the year than are property taxes, and this may be a factor in keeping down the delinquency ratio. Probably the most important factor, however, is the basis for the tax. Income from many forms of property is a variable, and a given amount of property taxes may represent a much greater burden on income in one year than in another. On the other hand, the income tax is based upon income, and the amount of the tax varies as income varies. While the property tax delinquency ratios that were considered are applicable only to the state general property tax, it seems probable that local property taxes in the same counties would show a similar record. In practice the state rate is added to the total local rate in determining the total levy, and the state and local property taxes are usually collected jointly. That there is a high rate of delinquency in local taxes is evident from a table published in the Report of the State Superintendent of Public Schools for the year 1929. The data presented were for school taxes in 20 counties of Missouri. Of total school taxes for the school year ended in 1929, amounting to $3.1 million, 15.19 became delinquent, and 6.9%, of the total had not been paid by October, 1929. The delinquency ratio for 1 county was 34.7%, and 9 out of the 20 counties showed ratios in excess of 15.09. Perhaps the worst feature of the delinquency situation is the fact that it is easy to establish a tradition that taxes do not have to be paid on time. The system of elected collectors TAX ADMINISTRATION 191 is another undesirable feature, since it is difficult for such an official always to be as insistent as might be desired, particularly if he is anxious to continue in office. His position depends on the will of the people from whom he collects taxes, and efficiency in collection procedure and the desire to hold office for another term are interests that are likely to conflict with each other. There are many other aspects of the delinquency problem, of which only two will be mentioned. It is often contended that high tax rates are conducive to a high ratio of delinquency. Whether or not such is the case depends to some extent on the assessment ratio. Tax rates and assessment ratios are complementary factors. A high tax rate may be offset by a low assessment ratio. The average taxpayer, however, is likely to approach the problem only from the standpoint of tax rates and to conclude that he is unable to meet his taxes because the rate is higher than in a neighboring county, when an analysis might indicate that the rate times the assessment ratio would show similar rates on true value in the two cases. Another phase of the problem is the fact of variations in assessments within the same jurisdiction. The greater the extent of such variations the more likely is it that a large proportion of taxes will become delinquent. It is perhaps needless to add that property escaping taxation is also a factor, particularly when such property is owned very largely by a minority of the taxpayers. PossiBLE CHANGES IN THE ADMINISTRATION OF THE GeneraL ProPERTY TAX The fiscal requirements of state and local governments in Missouri and the respective functions of these governments are so different at the present time from what they were in 1875, the year in which the present constitution was adopted, that in a real sense Missouri may be said to be a different governmental agency. In spite of numerous and far-reaching changes of an economic and social nature, the State Board of Equalization has remained at the head of the system of general property tax administration. While it may be 192 THE FISCAL PROBLEM IN MISSOURI true that in 1875 a system that granted final authority to an ex-officio board of elected state officials was justified, the time has long since passed when such a system could be regarded as satisfactory. No expert in taxation worthy of the name would care to defend the continuance of such a board, and this is particularly true when, as in Missouri, there is a Tax Commission subordinate in many respects to a State Board of Equalization. It is only by accident that such aBoard can attain the high degree of efficiency required in administering its duties. Those who look for improvement in the state finances believe generally that the first step to be taken is for Missouri to abolish the constitutionally established State Board of Equalization. A movement to accomplish this may encounter some resistance, since the average voter is not fully cognizant of the problem that is involved. In 1924, as has been stated previously, the Missouri electorate voted on an amendment that would have abolished the State Board of Equalization, and the proposal was rejected by approximately a two to one vote. This experience shows that it may not be an easy matter to accomplish the desired object. If, however, the members of the general assembly are agreed as to the need of such a change, it should be possible to convince the electorate as a whole of the advisability of the proposal. Obviously it would be futile to submit a constitutional amendment abolishing the State Board of Equalization without providing for a body to take over its functions. It seems desirable to establish a strong state tax commission having all the functions of the present Tax Commission and those of the State Board of Equalization, as well as other functions. It is generally recognized that states with welladministered property taxes are those with strong tax commissions, and there is no reason why Missouri cannot obtain satisfactory results through the establishment of a similar body. Under the present system, the State Tax Commission is handicapped by the fact that a higher body has authority to overrule its recommendations, regardless of their merit. Notwithstanding its handicaps, the Commission has done much toward improving conditions. The annual meeting of TAX ADMINISTRATION 193 assessors, for example, has unquestionably resulted in considerable improvement. Assessed valuations in certain parts of the state have been examined with a view to determining the proper recommendations concerning equalized valuations. The visits of the members of the Commission to the various counties have also been worth while. The fact remains, however, that the State Tax Commission lacks the authority that it should have to enable it to deal satisfactorily with the many and varied problems that come before it, while its prestige has suffered from the fact that it is subordinate to another body. It might be claimed that, if the State Board of Equalization were abolished and final authority in the equalization process were assigned to the Tax Commission, there would be no agency other than the courts to which appeals from improper assessments could be made. If the experience of other states may be taken as a guide, there is little to fear on this ground. Much depends, of course, on the integrity of those to whom the work is entrusted. It is also true that in a system with a high degree of central supervision the changes necessary after the original assessments are made should be reduced to a minimum. In addition to its present functions and its final authority in the equalization process, the State Tax Commission might be given the power to make reassessments in an entire county or smaller governmental jurisdiction. Only with such authority can a high degree of uniformity be attained. The Wisconsin Tax Commission, for example, which has such authority, has accomplished impressive results. The State Tax Commission might also be empowered to remove local assessors when they had definitely proved themselves incompetent. It could be given authority also to make a careful examination of the adequacy of the present method of compensating local assessors and to recommend to the legislature such changes as may be deemed to be desirable. Local assessors are as a rule not qualified to assess certain types of property, particularly large manufacturing properties. They need the assistance of an engineering staff assigned to the State Tax Commission, the function of which would be to assist in the assessment of large properties that 194 THE FISCAL PROBLEM IN MISSOURI the local assessors are unable to appraise satisfactorily. Such a staff might not only give assistance when requested, but also see that manufacturing and other large properties were assessed on a basis comparable with the assessment of other properties in the same local jurisdiction and throughout the state. The establishment of an effective system of administration by a strong tax commission would entail some increase of administrative costs. The benefits that would be derived from improved administration, however, should more than offset any reasonable increase. The functions of the State Tax Commission might be further extended by the transfer to it from the office of the State Auditor of the administration of the income tax and by the establishment of a centralized system of assessment and collection in place of the present local system of assessing and collecting this form of tax. This phase of tax administration will receive attention later. The state could be divided into districts for the purpose of establishing a system of central supervision of the general property tax and carrying out the other changes that may be introduced. St. Louis City and St. Louis County would naturally constitute one district, and Kansas City and the remainder of Jackson County, another district. A representative of the Tax Commission assigned to each district might assist in establishing a uniform system of valuation throughout the district. The district representative could avail himself of all information concerning property transfers, and the information thus obtained, as well as information from other sources, could be used in formulating recommendations to the local assessors. The first approach to the problem would be to ascertain the counties within a district in which property is relatively overvalued or undervalued. Conferences of district representatives would aid in deciding upon the prospective standards that should be adopted for assessing property and in maintaining them. When a reasonable assurance had been reached that property in the several counties was on the average assessed at approximately uniform percentages of true value, the next step would be to attack the problem of variations within the same county or other local governmental unit. In certain TAX ADMINISTRATION 195 cases this might entail the replacement of local assessors who were unwilling to lend their assistance in establishing the required degree of uniformity or proved themselves incapable of doing so. In other cases it would no doubt be necessary for the State Tax Commission and its district representatives to reassess the property within a county or other local government, in order that the required degree of uniformity might be obtained. It has previously been pointed out that the State Tax Commission might be given the authority to reassess the property within an entire county when the Commission deemed it necessary. Provision could also be made that such a reassessment should be undertaken when requested by a certain number of property owners, say five or ten, within a given taxing jurisdiction. The district representatives of the Tax Commission could be appointed by the Tax Commission or placed on a civil service basis. In the interest of efficiency, it is desirable that they should not be assigned to the same territory for a period longer than three or five years. A system of rotation would reduce to a minimum the possibility of alignment with local interests, and it might be well under a system of rotation for the state to pay moving expenses. It is a general opinion of those interested in taxation that if an effective start towards improved administration is to be made the general property tax on intangibles will have to be abandoned. As will be seen later, the present method of taxing bank stock will no doubt have to be discontinued, if other intangibles are not taxed as property. The attempt to reach intangibles for the general property tax has resulted in very general failure in other states as well as in Missouri. No one knows the proportion of taxable intangibles which are returried for taxation, and, considering the confiscatory nature of this form of taxation upon the income from the intangibles which are taxed, it is generally believed that some other method of reaching this form of property should be substituted. This part of the problem will receive further consideration in a later chapter. It is mentioned here to make clear that the duty of the district administrators would not include an endeavor to assess this form of property for the general property tax. 196 THE FISCAL PROBLEM IN MISSOURI It would promote uniformity of assessments if the township assessor system were to be abolished in those counties which have township form of organization. Moreover, district supervision would be more difficult in counties having township assessors if such officers were retained. It seems clearly desirable that land and buildings should be separately assessed. Approximately two thirds of the states now provide for separate assessment, and there appears to be no advantage in continuing joint assessment in Missouri. In order to prevent the escape of motor vehicles from taxation, applicants for state motor vehicle licenses could be required to present a receipt showing payment in the previous year of general property taxes on the motor vehicles which 1t is desired to register, and the license might be refused unless it could be conclusively shown that the motor vehicle was assessed. Purchases made between June 1 and the time when taxes are payable in the following year would constitute an exception, and obviously registration should not be refused in such cases. However, in order that an avenue of escape might not be open, the person who desired to register such a motor vehicle could be required to present a bill of sale in lieu of the statement showing that property taxes were paid. It might be contended that there would be collusion between motor vehicle dealers and buyers in post-dating bills of sale. However, such collusion for a postdating could accomplish nothing but to deprive the owner of the right to use the motor vehicle during the time between actual purchase and the date as shown on the bill of sale. As a first approach to the problem of assessing all livestock, the State Tax Commission could inform the county assessors of the number of livestock in the county as reported to the United States Department of Agriculture and shown in the five-year Census of Agriculture. Such data would indicate to the local assessor the maximum amount of the several kinds of livestock that might be expected. For administrative reasons, if for no other, the continuance of the general property tax for state purposes seems to be desirable. If the state received no revenue from this source, it would be a much more difficult task to exercise effective TAX ADMINISTRATION 197 supervision. So long as the state has a direct interest in the receipts from the general property tax, it has immediate interest in inequalities in assessments and in promoting the highest degree of efficiency that can be obtained as a result of administrative improvements. It is not intended to imply that the state rate on general property might not be gradually reduced, if such a step should prove to be feasible. Some might contend that the changes which have been under consideration are in direct violation of the home rule system of local government. This would not necessarily be the case, for the degree of home rule now in effect could be maintained even though it were necessary to observe the standards that the state might require under the system contemplated. If a particular local government is inefficient in administering the general property tax and perhaps in other respects, a system of central supervision is to be preferred, no matter to what extent the home rule principle might be superseded. Certainly no one would recommend the continuance of home rule in cases where it has produced undesirable results. PossiBLE CHANGES IN THE ADMINISTRATION OF THE INCOME Tax AnD OTHER TAXES It has been pointed out that decentralization in the administration of state income taxes is not favorably regarded. The states in which the income tax has been most successful from the administrative standpoint are those which have strong tax commissions in charge. Income tax statutes are usually complicated, and it is too much to expect that local assessors can interpret and administer the various features of the law in a uniform manner. In Missouri the work of the State Auditor has been most helpful. A copy of the statutes with regulations and interpretations has been published from time to time, and the regulations are naturally useful in guiding the local assessors toward the goal of uniformity. It is doubtful, however, that a degree of efficiency can ever be obtained under the Missouri system which would be comparable with that possible under a more centralized system of administration. 198 THE FISCAL PROBLEM IN MISSOURI Much can be said in favor of having the administration of the income tax assigned to the State Tax Commission and assessing and collecting the tax through district representatives of the Commission. It was pointed out in the preceding section that the state might be divided into districts for administrative purposes, and under this plan the district representatives of the State Tax Commission could combine duties in connection with the general property tax with those incident to the assessment and collection of income taxes. Such a plan should work out well, since most of the work in connection with the income tax would come during the earlier part of the year, while during the later part of the year the district representative could concentrate on improving the administration of the general property tax. Under such a plan the district representatives serving as income tax assessors and collectors could arrange to be at principal cities within the respective districts for one or more days prior to the final day for filing returns, for the purpose of receiving income tax returns and payments on account. Foreign corporations doing business in the state could be required to send their returns direct to the State Tax Commission on forms provided by the Commission. The representatives of the Tax Commission in charge of the several districts would naturally keep in touch with the central office on all income tax matters, particularly those involving unusual cases for which the statutes do not make specific provision. In time the number of doubtful cases would be reduced, since information concerning matters of interpretation and court decisions would be made available to the district representatives by the central office. Meetings of the district representatives of the State Tax Commission called for the purpose of considering income tax and other problems would be helpful. These meetings could be held as often as necessary. Collection through a system of district offices would no doubt be more satisfactory than any other plan which might be devised. Returns received under such a system would probably be more complete than those received under the present system of local assessment. less reason exists for delinquency in income tax collections than in the case of most TAX ADMINISTRATION 199 other forms of taxes, and 4 system of central supervision and administration through district offices would tend to reduce the percentage of delinquency that now exists. In like manner erroneous assessments and additional assessments made necessary by information received after the returns were filed would no doubt be reduced in time. Probably the most important advantage of such a system of income tax administration lies in the fact that the taxpayer deals with someone who can exercise an independent judgment without jeopardizing his position. Under the present system of local assessors and collectors dependent on the taxpayers for votes if they desire re-election, it is only natural that there might be a tendency to be more or less lenient in some cases, particularly when the taxpayer is regarded as a man of considerable influence in the community. The system of administration that has been under consideration would in a large measure divorce the assessment and collection of the income tax from local politics. [t will readily be appreciated that the local system of administration tends to an ineffective administration of an income tax, and that it is highly desirable to place the relationships between assessors and collectors on the one hand and taxpayers on the other on such a basis that mere friendship cannot hamper the effective administration of the tax. The present system of administering the corporation franchise tax, which is in the hands of the State Tax Commission, appears to be satisfactory. The work at present assigned to the State Auditor could be assigned to the Commission. The administration of the incorporation tax on domestic corporations and the entrance fees or taxes for foreign corporations rightfully belongs in the office of the Secretary of State, where such activities are now centered. The administration of the express company tax might be transferred from the office of the State Auditor to the State Tax Commission. It is thus contemplated that at the outset the work of the State Tax Commission would include only the administration of four taxes, that is, the general property tax including the private car tax, the income tax, the corporation franchise tax, and the express company tax. After the reorganization 200 THE FISCAL PROBLEM IN MISSOURI of the State Tax Commission in line with its enlarged functions had been completely effected, it might be well to consider transferring certain other taxes to this Commission. For example, it might later be desirable to have the administration of the gasoline tax assigned to the State Tax Commission, the field work to be handled through the several district offices of the Commission. For the present, however, the system of administering this tax which 1s now in force seems satisfactory, and a like observation applies to motor vehicle licenses, which are under the jurisdiction of the Secretary of State. No consideration has been given thus far to the inheritance tax. Although the system of administration by the Probate Courts is not particularly frequent in the United States, it would seem to be desirable to continue the present system for a year, or until such time as might be required for the reorganization of the State Tax Commission. If the powers of the State Tax Commission were enlarged, it would hardly be judicious to overburden it with too many functions at the outset. After the reorganization, however, it might be desirable to transfer the administration of the inheritance as well as the gasoline tax to the Commission. CHAPTER VII THE FARM TAX PROBLEM IN MISSOURI ISSOURI, like all other states in which agriculture M is important, has an agricultural problem. This problem has many angles, of which taxation is one. Farm taxes, however, are to be regarded not as a direct cause of the depressed condition of agriculture, but rather as a complicating factor in the situation. Much more important than the relation. of taxes to the farm problem are the circumstances that have resulted in overproduction of agricultural commodities and consequent low prices. The origin of the agricultural problem in the United States may be traced back to the homestead laws, which tended to bring the formerly unused acreage under cultivation at a rapid rate. During the World War period the acreage under cultivation was again increased, not only in the United States but also in other countries, the products of which compete with those of the United States in the world market. The excessively high prices prevailing during this period stimulated the development of unused lands as well as the more intensive cultivation of land in general. When prices declined after the War there was no immediate withdrawal of land from cultivation. In recent years some land has been withdrawn, but the acreage of the principal crops has not changed greatly. While low prices should tend to reduce the acreage, such a result may not be immediate. From the standpoint of agriculture as a whole, reduced acreage is desirable, but the individual farmer, faced with low prices for his product and certain fixed expenses that must be met, frequently tries to solve his problem by increasing output. While such a policy may result in some immediate benefit to the individual farmer, it tends to depress prices still further and thus works to the detriment of farmers as a group. Other factors, such as greater efficiency in production and 01 202 THE FISCAL PROBLEM IN MISSOURI increasing competition of foreign countries in the world market for agricultural products, have been contributing causes of the agricultural depression. Taxes Pap oN Missourt Farm ProPERTY [t is not possible to compute the total amount of taxes paid on farm property in Missouri, for the reason that the requisite data concerning rates of taxation and valuations of farm property throughout the state are not available. For the year 1927 the United States Department of Agriculture made an estimate of the general property tax on farm property in all the states.! According to this estimate the general property taxes on all farm property in Missouri amounted to $20,063,000 for 1927. It therefore appears that taxes on farm property accounted for approximately one fifth of the state and local general property taxes, which amounted to $100,948,955.2 In a report to the State Survey Commission a similar conclusion was reached for the year 1928. For that year property taxes paid by farmers were placed at less than $20 million. Reference to Tables 41 and 42 indicates that the valuation of lands and the valuation of farm-owned personal property would amount to much more than one fifth of the general property tax base for the state. It should be noted, however, that not all lands represent land in farms, and that the estimate of slightly more than $20 million does not take into consideration the general property tax paid on forest and other lands not owned by farmers. If allowance were made for this fact, and an addition were made to the farm general property tax base on account of livestock, farm implements, automobiles, and so on, it would be found that the proportion of the total tax base attributable to farm property would be considerably larger than the proportion of total general property taxes paid by farmers. The reason for this is that the tax rate is considerably lower on the average in rural communities than in urban communities. It has been pointed 1 United States Department of Agriculture, Technical Bulletin, No. 172, State and local general property tax total computed from data in Tables 31 and 32, pp. 103 and 108. * The Taxation System of Missouri, 1929, p. 25. THE FARM TAX PROBLEM IN MISSOURI 203 out in a previous chapter that the average tax rate on property in the state is approximately $2.00 per $100 of valuation. On the other hand, the available data indicate an average rate of between $1.30 and $1.40 per $100 in the rural sections. Comparison between general property taxes on farm property and urban property cannot be based on proportions of the tax base, because urban rates are, on the whole, much higher than rural rates. The farmer in Missouri pays other taxes in addition to the general property tax. Certain farmers, although in the minority, pay an income tax. In the assessments for this cax, the farmers have an advantage. If a married man with no other dependents lives in an urban community and receives a salary of $2,500, he is required to pay an income tax of $5.00. If he pays $600 for rent and $600 for food, his income, after paying for housing and food, would be only $1,300. On the other hand, a married farmer with no other dependents who has a net income of $1,500 pays no income tax, although that amount of income may be roughly equivalent to a $2,500 urban income, because ordinarily a large part of the food used by a farmer is raised on the farm and, in addition, the farm represents a home. This difference is significant, particularly when the burden of taxes as a whole 1s considered. Farmers also pay considerable amounts on account of motor vehicle licenses and the gasoline tax. The total paid by farmers in Missouri on account of these two taxes was sstimated as $3,880,000 for 1927} Also, a portion of the annual receipts on account of the state inheritance tax represents the transfer of farm properties and property owned by farmers. Ner Rent Stupies in Missouri AND OTHER STATES From time to time several of the agricultural colleges in the United States and the United States Department of Agriculture have made intensive studies of the relationship between net rent from farm operation and farm taxes. The studies do not cover the same period in each case, but this 1 United States Department of Agriculture, Technical Bulletin, No. 172. 204 THE FISCAL PROBLEM IN MISSOURI fact does not destroy the comparability of the data, so long as data for at least one year are included in each study. Certain summary tables have been compiled from these studies, and the data thus presented in these tables form a basis for comparison. It should be pointed out that these data are in the nature of statistical samples. Certain counties were selected, and information concerning net rent and taxes on a per acre basis were obtained from a number of farmers within each county. Since the data obtained from these studies are not always for the same years, and since there may be considerable variation in the representative character of the samples, it was decided to present certain supplementary statistics to serve as corroborative evidence.l TaBLe 58: General Property Tax iv REeraTION TO Rent PER Acre, CasH-RENTED Farms IN THE NorTHwESTERN CounTiES oF Missouri, 1913-1922} Source: University of Missouri, Agricultural Experiment Station, Research Bulletin No. 93 Tear "14 915 1916 1917 1918 1919 1920 1921 (999 Number of Farms 7 n “ MEL Number of Acres y i 33,40: Average Rent per Acre 3.12 2.31 N 3 4 VF sT4 Average Tax per Acre i 0.32 0.32 0.35 0.36 "48 3 7 077? Relation of Taxes to Cash Rent Par Cent? v 2 7 “TQ my 1 Andrew, Atchison, “Buchanan, Caldwell, Carroll, Chariton, Clay, Clinton, Daviess, De Kalb, Gentry, Grundy, Harrison, Holt, Lafayette, Linn, Mercer. Nodaway, Platte, Putnam, Saline, Sullivan, and Worth Counties. 2 The percentage figures in this column were computed from totals and not from the derived per-acre ficures. Several years ago the Missouri Agricultural Experiment Station prepared an analysis which showed the relation of taxes to cash rents in the northwestern counties of Missouri for the years 1913 through 1922. The results of this investigation are presented in Table 58. This table shows that for a few years after 1913 property taxes absorbed a declining 1The supplementary data will be presented in the following section. THE FARM TAX PROBLEM IN MISSOURI 205 proportion of the cash rent, while in the later years the proportion increased, the highest percentage being for 1922. In that year general property taxes on 206 farms were equivalent to 17.19, of the cash rents. TaBLE 59: GENERAL PropeErTY Tax anp Ner RENT PER Acre oN SeLEcTED Farms inv Missouri, 1919-1923 Source: University of Missouri, Agricultural Experiment Station, Research Bulletin No. 93 ounty Audrain and Boone... Gentry... - New Madrid. . Summary! of four counties. .. (ear Number of Farms 1919 1920 1921 1922 1923 6 17 31 76 1. Year Average 1919 61 1920 63 1921 67 1922 2 1923 33 5-Year Average 1919 1920 1921 1922 1923 12 13 iy 9 107 5.Year Average 1919 1920 1921 1922 1923 73 &2 In Number of Acres Net Rent per Acre before Taxes 1,269 | $3.85 2772 | 3.03 5578 | 4.36 14.993 3.61 371 1,213 1,442 2,082 3,166 31242 4.19 1.04 3.26 1.14 3.03 3573 2,427 2,627 3.842 “15 31.030 5.23 06 77 407 4.53 4.83 13,640 '5,218 4.71 4.32 3.49 hi 1 2 Tax per Acre $0.35 0.60 0.60 0.53 0 52 0.53 J.59 0.81 CR 0.72 0.62 0.56 0.71 1.02 0.97 1.01 0.85 0.47 0.55 nel cer Cent of Net Rent be-“ore Taxes Paid in Taxes 9.1 19.8 13.8 14.7 14.0 9.1 14.6 24.8 19.7 23.8 17.6 10.7 14.0 21.4 21.2 22.3 17.6 10.0 12.7 22.0 “R.2 20.1 5-Year Average | 4.09 0.66 , 16.1 1 The net rent and tax per acre figures given in the summary in each case represent an average of averages shown in the three groups of counties. Another study made in Missouri involved a comparison of taxes and net rents in Audrain, Boone, Gentry, and New Madrid Counties for the years 1919 through 1923. The results of this investigation are shown in Table 59. The data in this table show variations between counties. For example, 206 THE FISCAL PROBLEM IN MISSOURI TasLe 60: GeNERAL ProPeErTY Tax AND NET RENT PER Acre oN SELECTED Farms in Iowa, 1913 ano ForLrow-ING YEARS Source: Iowa State College, Extension Bulletin No. 150 ‘gar Number of Farms | Number of Acres Net Rent per Acre before Taxes Tax per Acre Per Cent of Net Rent before Taxes Paid in Taxes! Cash Rented Farme 1914 1615 Total or average 1918 1921 1922 1923 Total or average Total or average? 1926 1977 “¢ 104 532 85 64 167 603 862 1,465 [RELY 13,07 19.515 Pr.id 4.58 4.37 whi / 0.66 0.70 wr il 14.4 15.9 14.2 085 ' 160 104,464 18.517 426 © 598 14,222 5,496 8.941 21.6 32.9 36.1 28,659 5.84 1.56 26.7 10LI64 | 490 | 136 27.7 166,731 4.54 1.30 28.7 267,80¢ 4.68 , 132 28.3 Share-Rented Farms 197 + 1914 19158 202 ; 128 : 7,430 13,186 26.425 97.041 12.537 8.26 | 7.57 6.07 Q56 0.60 0.64 6.6 7.9 10.6 7.7 7.5 Total or average! 1918 467 PT 7.57 9.90 0.58 0.74 26.7 22.6 34.8 1.56 + 23.3 sn 91,905 138 27.0 1 The percentage figures in this column were computed from totals and not from the derived per acre figures. 2 These averages were computed from the acreage, rent, and tax totals. Total or average? in New Madrid County general property taxes in 1923 absorbed 22.3%, of the net rent per acre. In Gentry County the proportion was 23.8%, while for Audrain and Boone Counties the proportion was only 14.7%, Considering the data for Missouri presented in the two tables, it seems safe to conclude that from 1921 to 1923 the general property tax THE FARM TAX PROBLEM IN MISSOURI 207 absorbed between 169, and 229, of the net or cash rents derived from the farms in those Missouri counties from which the samples were chosen. Table 60 shows the results of a study, made under the auspices of the Iowa State College, which deals with the relation of taxes to net rents of both cash-rented and sharerented farms in that state. This study is particularly interesting, since it shows results for several periods of years. For the purpose of comparison with Missouri, the data for 1921, 1922, and 1923 are especially significant. For example, for 1921 and 1922 the general property tax was equivalent to a larger per cent of the rent on both cash-rented and sharerented farms in Iowa than in Missouri. While 73 sharerented farms in Iowa in 1923 show a ratio of taxes to net rent of 34.89, Table 59 shows a ratio of only 20.19, for 256 farms in Missouri. TaBLE 61: GENERAL ProPERTY Tax AND NET RENT PER AcrE oN SELECTED CasH-ReNTED Farms 1x Onio, 1913-1922 Source: United States Department of Agriculture, Taxation of Farm Real Estate in Indiana ear 1913 1914 i915 1916 917 918 1919 320 21 QD Number of Farms Number of Acres 2 J7 17 R4 (1.941 15,271 ~32 28 11.850 Net Cash Rent per Acre nefore Taxes ol "35 38 70 79 7 25 's,.99 Tax per Acre 2 Ss 3 90 89 n7 22 “3 AA Per Cent of Net Rent before Taxes Paid in Taxes! 23.8 21.4 26.9 26.3 28.9 32.2 31.1 34.0 ~7.8 41.0 1 The percentage figures in this column were computed from totals and not from he derived per acre figures. Table 61 shows the results of a study made of cash-rented farms in Ohio for the period 1913 through 1922. This study was for the same period of years as the study of cash-rented farms in Missouri, the results of which are presented in Table 58. Comparison of the two tables shows that in each year taxes in Ohio were equivalent to a larger proportion of 208 THE FISCAL PROBLEM IN MISSOURI cash rent than in Missouri. The comparison also shows conclusively that the difference is not attributable to a difference in rents, but to a considerable difference in taxes per acre, which is a significant factor in itself. For the period as a whole the rent data for the two states are similar, but taxes per acre were more than twice as large for Ohio as for Missouri. TasLe 62: GENERAL ProperTy Tax anp NET RENT PER Acre oN SELECTED Farms! iN INDIANA, 1919-1923 Source: United States Department of Agriculture, Taxation of Farm Real Estate in Indiana Year Number of Farms Number of Acres Net Rent? per Acre before Taxes Tax ? per Acre Per Cent of Net Rent before Taxes Paid in Tava 1919 2 10.508 J 1920 79 12,863 5.11 1921 90 1 14,970 | 3.98 } 1922 | 100 16,680 3.7 1023 105 17.120 4.28 7) tal 1.54 160 C1 12.0 21.7 38.7 43.1 33.2 Average! | . 122 1 Tipton, Miami, and Monroe Counties. 2 Arithmetic averages of county data. ¢ Computed from two preceding columns. ' Computed from data in this table. The figures are not averages of individual -ounty averages for the period. 5 Computed from two preceding columns. 26.75 Table 62 shows the results of a study of farm taxes in Indiana made by the United States Department of Agriculture. Farms were selected in three counties, and data were compiled for the years 1919 through 1923. This period corresponds with the years for which Missouri data are presented in Table 59. While taxes per acre in the Indiana counties for 1923 amounted to $1.41, the average of Missouri data as given in Table 59 indicates a tax of approximately $0.75 per acre. For the period as a whole, the taxes per acre were $1.31 for Indiana and $0.66 for Missouri. The latter figures are not strictly comparable, however, since the summary data were compiled in a slightly different manner for the two states, but this factor would account for only a small part of the difference in the figures. In Indiana 105 farms showed a ratio of taxes to net rent of 33.29}, for 1923, while in THE FARM TAX PROBLEM IN MISSOURI 209 Missouri the average of the three groups shows a ratio of 20.19, for the same year. The difference is equally marked when the ratios computed from the combined data are compared. TasLE 63: GENERAL ProPErRTY Tax ano Net RENT PER AcrE oN SELECTED Farms! in Norra Dakota, 1919-1924 Source: North Dakota Agricultural College, Agricultural Experiment Station, Bulletin No. 203 fear 1919 1920 1921 1922 1923 1924 Number of Farms 62 79 | 98 120 * Number of Acres 14,567 22,317 27,447 32,341 39,339 38,784 Net Rent? per Acre before Taxes 2.09 27 1.08 1.30 1.03 3.55 T: ax? per Acre} £0.32 0.60 0.66 0.69 0.67 0.55 Per Cent of Net Rent before Taxes Paid in Taxes? 12.9 47.2 61.1 53.1 65.0 15.5 Average! | 88 29,133 wer 0.58 | 33.75 1 Traill and Wells Counties. 23, 4,5 Same as footnotes 2 3, 4 5 Table 62. 8 ¥lat hail tax included. Table 63 shows similar data for taxes and net rents in two counties in North Dakota for the years 1919 through 1924. Again the comparison is entirely in favor of Missouri. In no year of the period for which data for both states are given does Missouri show so high a ratio as North Dakota. The same applies to a comparison between South Dakota and Missouri, based on the data in Tables 64 and 59. In both of the Dakotas the ratios for the years 1920, 1921, and 1922 were much higher than in Missouri, although in 1923 the difference for South Dakota was not quite so marked. Table 65 shows the results of a property tax and net rent study of selected farms in Michigan for the years 1919 through 1926. A comparison of this table with the Missouri data indicates that the farms studied in Missouri show a much more favorable ratio of taxes to net rent than is the case in Michigan. It is also clear that the net rent per acre in Michigan, as well as in North Dakota and South Dakota, was on a much lower level than in the counties studied in Missouri. In spite of the much lower net rent per acre in Michigan, taxes per acre were at a much higher level through- 210 THE FISCAL PROBLEM IN MISSOURI TasLg 64: GENERAL Property TaxEs AND NET RENT PER AcrE oN SELECTED Farms! in Sout Dakora, 1919-1926 Source: South Dakota State Callegy, Agricultural Experiment Station, Bulletin 0. 232 YVaay 0.) 1920 1921 1922 1923 1924 925 QE Average? Number of | Farms Number of Acres Net Rent? per Acre before Taxes Tax per Acre? Per Cent of Net Rent before Taxes Paid in Tacha 152 132 133 192 164 on 60,066 47.817 49.203 48,974 49.850 64,249 44 274 I vid 2 bry 76 1.30 1.68 2.01 3.33 3.16 7 38 $0.7? 0.74 0.71 0.71 0.66 0.69 0.72 0.71 16.1 42.0 54.6 42.3 32.8 20.7 22.8 29.8 «1 50399 243 28.45 t In Brookings, Beadle, Day, Hamlin, and Pennington Counties. 2, 3,4, 5, Same as footnotes 2 8 4 5, Table 62. out the period 1919 through 1923. In Michigan taxes per acre showed a tendency to decline after 1921. While it is true that taxes per acre as shown in the Missouri table were $0.81 in 1921 as compared with $0.73 for 1922 and $0.75 for 1923, it is doubtful that there has been a decline since 1923 in the Missouri counties combarable with the decline in TaBLE 65: GENERAL ProPErRTY TAX AND NET RENT PER Acre oN SELECTED Farms! in Micuican, 1919-1926 Sources: Michigan State College, Agricultural Experiment Station, Technical Bulletin No. 91, and United States Department of Agriculture, Technical Bulletin No. 172 Year 1919 1920 1921 1922 1923 1924 1925 1974 Number of Farms J21 192 415 656 578 677 M10 “Ye Number of Acres 60,654 43,956 46.546 76,483 63.954 75570 0177 63.394 Net Rent per Acre before Taxes 2.99 2.17 2.66 2.25 244 N49 rn Tax per Acre 29 1.49 1.53 1.49 151 141 145 1 a7 Yer Cent of Net Rent before Taxes Paid in Taxes Vil 49.8 70.5 56.0 67.1 57.8 54.3 54.8 Average _ 6877 _ 524 1 Includes farms in all counties in the lower peninsula except Cheboygan, Crawford, Oscodd, Roscommon, Montmorency, Kalkaska, and Otsego Counties. 2 These farms reported for each of the years 1925 and 1926. 8 Computed from the two preceding columns. THE FARM TAX PROBLEM IN MISSOURI 211 Michigan. The valuation of lands in Missouri has declined, but it is difficult to say to what extent the decline has been offset by an increase in local tax rates. Another factor that enters into the problem is the decrease in the state rate on property in Missouri. If data were available for later years for the four counties included in Table 59, they would probably show some decline in taxes per acre. There are two factors tending to cause a decline, namely, the decrease in the state rate and the decrease in the valuation per acre,! as compared with one factor, the increase in local rates, that would tend to cause an increase.? TaBLE 66: GENERAL ProperTY Tax AnD NET RENT PER Acre oN SELECTED Farms! in Arkansas, 1921-1925 Source: University of Arkansas, Agricultural Experiment Station, Bulletin No. 223 = Per Cent of Net Rent before Taxes Paid in Taxes 19.0 16.5 20.0 17.6 17.2 Average _ 0.56 17.82 «+ Includes farms in Washington, Crawford, Sebastian, Craighead, Mississippi, Faulkner, Pulaski, Lonoke, Hempstead, Nevada, Drew, and Desha Counties. 2 Computed from two preceding columns. 1921 1922 923 (924 (90 § 48, fu 2 55.302 58,542 66.218 The results of a net rent study in Arkansas are shown in Table 66. This is the only state considered in this section for which the ratios of taxes per acre to net rent per acre are comparable with those for Missouri. In fact, for the three years included in Tables 59 and 66, it would appear that taxes in relation to net rent were slightly lower in Arkansas than in Missouri. F'aArM Taxes IN ReLation To Gross Income, Casa INcoMmE, AND Otuer Factors It should be remembered that the data which have been considered in the previous section represent statistical 1The total valuation of lands in the four counties was approximately 16% lower for taxes of 1928 than for taxes of 1923. 2 Exclusive of changes in the ratio of assessed valuation to true value. 212 THE FISCAL PROBLEM IN MISSOURI samples. To the extent that the samples are representative of farms in general throughout the states, the comparisons are entirely valid. On the other hand, it must be admitted that probably the data for at least a few of the states are not fairly representative, and, so far as this is true, it is desirable that other data be presented. Any one familiar with agricultural conditions in Missouri knows that the northwestern counties, data for which are shown in Table 58, are unquestionably superior from an agricultural standpoint to a large part of the land south of the Missouri River Valley. In view of the importance of factors such as those mentioned, it was decided to obtain from other sources data that might throw some light on the relationship between taxes and income from agriculture as a whole in Missouri and in the other states in the same section. As stated previously, estimates of the general property tax on all farm property in Missouri in 1927 and of the amounts paid by farmers on account of the two principal forms of motor vehicle taxation, were made by the United States Department of Agriculture, which also compiled data for the gross value of crops, the gross value of animal products, the gross income from farm production, and the cash income! from farm production in the several states. While these data are in the nature of estimates, and there is, therefore, some margin of error, the data may be used for comparisons that will tend to support or to disprove the conclusion previously reached, namely, that in relation to net rent from farm operation the various studies show that taxes are relatively low in Missouri. Table 67 shows the supplementary data for Missouri and eleven other states for the year 1927. The data for gross value of crops and gross value of animal products when compared with taxes do not prove anything in themselves, and they are presented in connection with the other data merely as a matter of interest. The important ratios to be considered are those of taxes to gross income and to cash income. It may be seen in Table 67 that Missouri ranked tenth in general property taxes on all farm property, seventh in respect to gross income from farm production, and eighth on the basis of cash income from farm production. When the ratios of 1 Cash income should not be confused with net income. TasLE 67: Farm Probuction, VALUE, AND INcoME Factors AND CerTAIN Taxes PAID BY FARMERS, Missouri AND OTHER STATES, 1927 United States Department of Agriculture, Yearbook of Agriculture, 1930, and Technical Bulletin No. 172 Amountsin tonsands - = 2) Gross Income? from Farm Production | Cash Income? from Farm Production State Gross 7Talue of Crops! Gross Value of Animal Products! Crops Animal Products Total Crops Animal Products Total Missouri. .... Minnesota. .......... (OWa.eovenennnannnn. Nebraska. ........... Kansas. ..cocnvwsniss Oklahoma... ........ Arkansas... cen. Minois....... .. .. Indiana........... .. 0. cei rrisivnrases Wisconsin. ...... .. Kentucky.......... $311,162 336,685 532,427 121,041 386,528 301,495 222,036 $41,843 251,494 304,427 295,102 210.925 $297,227 320,240 569,401 284,542 237,938 124,425 62,866 352,400 238,043 278,183 353,726 122.122 $115,507 114,689 122,490 182,705 205,158 204,414 168,352 202,901 95,119 £35,144 81,019 102.149 $292,833 311,250 569,138 269,997 220,972 118,065 61,603 351,245 228,990 269,197 348,397 118.820 $408,340 425,939 591,628 452,702 426,130 322,479 229,955 554,146 324,109 404,341 429,416 290.969 386,701 97,132 103,622 174,304 195,050 191,923 146,648 181,960 78,846 108,456 57,646 76.969 $239,822 274,913 521,607 242,403 187,382 80,267 29,736 301,802 190,804 220,914 318,628 74.098 $326,523 372,045 525,229 416,707 382,432 272,190 176,384 183,762 269,650 329,370 376,274 151.067 | Estimated quantities produced times weighted annual prices. 2 Estimated quantities sold and consumed in farm households times weighted annual prices. 3 Estimated quantities sold times weighted annual prices. Sener! Toperty Tax on All Farm Property $20,063 33,243 50,131 28,080 40,188 21,220 8,495 46,986 40,550 16,233 32,912 12.602 License La on Farm-Owned Autos and Tax on Farm-Used Gasoline $3,880 4,317 5,264 2,885 3,629 3,871 2,021 2,921 3,728 4,475 4,470 2.086 Total of Three Taxes $23,943 37,560 55,395 30,965 43,817 25,091 10,516 19,907 44,278 50,708 37,382 15.689 - py ob ID x B FF ia i, = X ~ I +2 Sa x wa TapLe 68: Ratios or CERTAIN Taxes Paip BY FARMERS To FARM PropuctioNn, VALUE, AND INcOME Factors, Missourt AND OTHER STATES, 1927 Computed by National Industrial Conference Board Rant of Sars in This Group According to Ratios J nN Gross Value of Crops Per Cent Gross Value of Animal Products Per Cent Gross [ncome from Farm Production! Per Cent Cash Income from Farm Production? Per Cent General Property Tax to Gross Income General Property Tax to Cash Income Total of Three Taxes to Gross Income Total of Three Taxes to Cash Income Missouri: general property tax! total of three taxes’. . at Bh Minnesota: general property tax’ eee total of three taxes®. ........... Iowa: general property tax? Cee. total of three taxes?. . a5 § wa general property tax? «88 Bis total of three taxes’. eee. zeneral property tax? RE otal of three taxes®. ET teneral property tax? 58 4 3 TY otal of three taxes®. . bo md zeneral property tax? Cen total of three taxes’. ees general property tax®. v5 Ee total of three taxes®. pp general property tax’ . ¥ ne total of three taxes. cee general property tax? Cae total of three taxes. I. zeneral property tax? - total of three taxes’. ........ Zeneral property tax. ...... total of three taxed? 1 Crops and animal products. 2 General property tax on all farm property. 3 General property tax on all farm property, license tax on farm-owned automobiles, and tax on farm-used gasoline. Er Ohio: THE FARM TAX PROBLEM IN MISSOURI 215 taxes to the value and income totals are compared, the real significance of the data becomes apparent. Such ratios are shown in Table 68, and the twelve states are ranked on the basis of the respective ratios. This table shows that in 1927 the general property tax on farm property was equivalent to 4.99, of the gross income from farm production and 6.1%, of the cash income from farm production in Missouri. When the estimated amounts paid on account of motor vehicle licenses and the gasoline tax are added to the general property tax, it is found that the three taxes amounted to 5.9%, of gross income and 7.3%, of cash income. In respect to each of these ratios of taxes to income, Missouri ranked eleventh among the twelve states. The ratios for Missouri were found to be less than one half as large as those for Indiana and Ohio, which ranked first and second, respectively. An objection might be raised concerning the gross value, gross income, and cash income data, as shown in Table 67, on che ground that there is considerable variation from year to year and from state to state in the value and income factors. In order to obviate such an objection, Tables 69 and 70 were prepared. The tax data in these tables are the same that were used in Table 67, but the data for gross value of crops, gross value of animal products, gross income from farm production, and cash income from farm production represent averages for the years 1926, 1927, and 1928. The data for these years were averaged in order to secure more representative figures as a basis for comparison. Table70shows that the ranking of Missouri remained unchanged when the data were averaged for the three-year period. There are certain changes in the ranking of other states in Table 70, as compared with those in Table 68, but Indiana and Ohio ranked first and second, respectively, as in the previous table, and Arkansas ranked last. Tables 67 to 70 tend to support the conclusion reached previously, namely, that farm taxes in relation to the income factor are lower in Missouri than in other states. They indicate also that farm taxes in Missouri are on approximately the same level as in Arkansas. Since the data in these tables are for a more recent year than the net rent studies, they indicate that farm taxes in Missouri have TABLE 69: AVERAGE oF Farm PropuctioN, VALUE, AND INcomE Factors ror THE YEArs 1926, 1927, aND 1928 anD CerTAIN Taxes Paip By FARMERS IN 1927, Missourt AND OTHER STATES Sources: United States Department of Agriculture, Yearbook of Agriculture, 1930, and Technical Bulletin No. 172 Computed by National Industrial Conference Board Amounts in thousands ND i CI State Missouri. ............ Minnesota. .......... IOWA. oc vvvrrennnnnnn. Nebraska............ Kansas. ............. Oklahoma... ...... Arkansas............ Minois. .veeeernnnn.. RAR. vo wes seni ns INI cans rrenireine. Wisconsin. ......... Kentucky. . . Gross Value! of Crops 5309,027 332,910 528,989 343124 371,788 307,993 220,447 168,628 256,634 309,016 292,99 META Gross Valuet of Animal Products 3305, 10¢ 335.957 584.619 294,814 245.250 124,099 62,886 %N,351 243,242 23 Gross Income? from Farm Production Crops Animal Products Total $114,150 "18,602 "41,539 35178 214,061 719,329 69,422 275,265 0330] “are $302,27., 325,691 580,321 298,724 240,864 117,404 62,006 356,826 235,852 274.810 nA © $416,420 444,293 721,360 433,902 454,925 336,733 231,428 582,091 339,153 412,168 423,45C 210 WNT « q —~p Cash Income? from Farm Production Crops Animal Products Total $85,124 100,287 122,052 126,737 204.121 206,622 146,890 203,562 86,351 110,229 58.871 QL € 5248.42. 289281 532,340 270,654 207,147 80,453 29,203 306,901 196,491 225.932 311,658 79° 246 $333,547 389,568 654,392 397,391 411,268 287,075 176,093 510,463 282,842 336,161 370,529 109 977 Guna roperty Tax on all Farm Property $20,063 33,243 50,131 28,080 40,188 21,220 8,495 46,986 40,550 46,233 “2,912 DN L0N License Tax on F rm-owned Autos and Tax on Farm-used Cacaling Total of Three Taxes , 0 $23,943 4317 37.560 5264 | 55.395 2.885 | 30,965 3.629 | 43.817 3.871 | 25.091 2021 | 10,516 2.921 | 49,907 3728 | 44278 4475 | 50,708 4470 | 37.382 NRA 15 £88 * Estimated quantities produced times weighted annual prices. . . > Estimated quantities sold and consumed in farm households times weighted annual prices. t Estimated guantities sold times weighted annual prices. TasLe 70: Ratios oF CErTaIN Taxes Pap By Farmers IN 1927 To AVERAGE oF FARM PRODUCTION, VaLug, AND Income Factors For THE YEARrs 1926, 1927, anp 1928, Missouri AND OTHER STATES Computed by National Industrial Conference Board anl nf Seates in This Group according to Ratios > — 3 Sross Value of Crops Per Cent Gross Value of Animal Products Per Cent Gross Inzome from Farm Production! Per Cent Cash Income from Farm Production! Per Cent State STuseral Sneral roperty | roperty Tax to Gross ' Tax to Cash Income Income Total of Three Taxes to Gross Income Total of Three Taxes to Cash Income Missouri: general property tax?. veers total of three taxes®. . Cees Minnesota: general property tax? ps total of three taxes®.... ....... [owa: general property tax? conn. total of three taxes®. ........... Nebraska: general property tax?.. een total of three taxes’. ........... Kansas: general property tax? vwnbas otal of three taxes’. . eee reneral property tax’ . ......... total of three taxes’. ... ....... zeneral property tax?.. ....... ‘otal of three taxes... ........ zeneral property tax?. Cees ‘otal of three taxes®.. . ....... zeneral property tax? ....... total of three taxes’. . I general property tax?.. eee total of three taxes’... ..,.. .. general property tax®........ total of three taxes®..... general property tax?... total of three taxes® 6.5 1.7 10.0 {1.3 9.% 10. 2.0 7. 9. 1. i 3. rc Q 6.0 7.2 8.5 9.6 J ¥ 2 #a 0. n Se A 4 7 VJ 1) ¢ 3 07 od v2 “8 ) 1 8 v7 42 6.4 0 9.5 | 10.8 10.4 r 7 ¢ 0 2.6 5.8 7.3 Ty +4 J 2 .3 14.3 15.7 13.8 15.1 89 101 5.6 12.0 13.1 11.2 12.3 7.8 po 8° < Ohio: Wisconsin: Kentucky: 1 Crops and animal products. . i 2 General property tax on all farm property. * General property tax on all farm property, license tax on farm-owned automobiles and tax on farm-used gasoline. 218 THE FISCAL PROBLEM IN MISSOURI retained their relatively low level, as compared with farm taxes in other states. In Table 71 the forty-eight states in the United States are ranked on the basis of the ratios of general property taxes on all farm property to gross income from farm production and cash income from farm production. Asin the previous tables, the gross and cash income data for 1927 were used, and an average was made for the three years, 1926, 1927, and 1928. While the forty-eight states are shown in the order of their ranking, as determined by the ratios of taxes to gross and cash income, since all of the data used are in the nature of estimates the quartile system is to be preferred to an absolute ranking. Thus, the twelve stateswith the highest ratios comprise the first quartile in each instance, and those with the lowest ratios, the fourth quartile. This table shows that in each case Missouri ranks in the third quartile. This quartile includes states from widely varying sections of the country. On the other hand, the fourth quartile includes southern states exclusively, when gross income is used as a basis for comparison, and, when cash income is used, the southern states predominate in this quartile. Table 71 is valuable as corroborative evidence that farm taxes in Missouri are relatively lower than the average for the United States. The previous analysis of cash and net rent studies for eight states led to the conclusion that Missouri ranks low among these states on the basis of the ratio of taxes to cash and net rents. This low ranking is confirmed by the finding that Missouri ranks below the average when comparisons are made of the estimates compiled by the United States Department of Agriculture. Taxes oN OwNER-OPERATED Farms Probably the most valuable of the many studies of farm taxes 1s the study of taxes in relation to the value of land and buildings of owner-operated farms in all states for the year 1924 made by the United States Department of Agriculture. In many states the proportion of owner-operated farms included in this study represented a very large percentage of the total of such farms. For example, it was found that TasLe 71: RANKING oF STATES oN Basis or Ratios! or GeNEraL ProperTYy TaxEs oN Arr Farm PROPERTY to Gross AND Cas Income From Farm Probpuction Computed by National Industrial Conference Board Ratio of General Property Tax, 1927, to Ratio of General Property Tax, 1927, to Gross Income from Average Gross Income Cash Income from Average Cash Income Farm Production, from Farm Pro- i Farm Production, from Farm Production, 1927 duction, 1926, 1927, 1928 1927 1926, 1927, 1928 {ndiana Dhio Michigan Kansas New Hampshire Massachusetts dlinois South Dakota Minnesota Utah Oregon Wisconsin Colorado North Dakota iowa Maine West Virginia Pennsylvania Nevada Dklahoma New Jersey California Nebraska Wyoming Washington [daho Kentucky Vermont Connecticut Rhode Island New Mexico New York Missouri Maryland Arizona Montana First Quartile ndiana Jhio West Virginia Michigan New Hampshire {ansas Aassachusetts linois 2ennsylvania South Dakota Minnesota Maine BN adiana dhio Michigan New Hampshire South Dakota {ansas viassachusetts Jorth Dakota inois Jregon Wisconsin Utah Second Quartile i /isconsin Utah Oregon Kentucky Colorado North Dakota iowa Oklahoma Nevada Tennessee New Jersey Nebraska JAaine Colorado Vlinnesota 2ennsylvania West Virginia ‘owa Nebraska New Jersey California Oklahoma Vashington daho Third Quartile ermont Wyoming California Washington Connecticut idaho Missouri Rhode Island Maryland New York New Mexico Georgia ‘evada Nyoming /ermont {entucky New Mexico Connecticut Montana Maryland Rhode Island Jew York ‘rizona Jlissourt ndiana Ohio Michigan New Hampshire West Virginia Massachusetts South Dakota Kansas Maine Hinois North Dakota Pennsylvania Wisconsin Oregon Minnesota Jtah Colorado Lentucky fowa Oklahoma New Jersey Jebraska Jennessee Jermont “‘Yashington idaho California Jevada Wyoming Maryland Connecticut Georgia Missouri Virginia Rhode Island Mew Mexico Fourth Quartile Tennessee Virginia New York Florida North Carolina North Carolina North Carolina Montana Montana Louisiana Arizona South Carolina Georgia Tlorida . Arizona Mississippi South Carolina Mississippi Virginia Mississippi Louisiana Texas Louisiana Florida Arkansas Arkansas Arkansas South Carolina Texas Texas Delaware Delaware ilabama Alabama __ Alabama Delaware Data used in computing ratios from sources indicated in Tables 67 and 69. 11Q 220 THE FISCAL PROBLEM IN MISSOURI there were 260,473 farms in Missouri, of which 141,794 were owner-operated. Statistics for taxes and the value of land and buildings were obtained for 118,663 of the latter. In other words, the sample for Missouri includes about 46%, of all of the farms in the state and almost 849, of the owneroperated farms. The proportion of total acreage in farms included in the sample was approximately 459% of the total farm acreage for the state and 849, of the total acreage of owner-operated farms. Table 72 shows the data for the value of land and buildings and taxes on farm land and buildings. The third column in this table shows taxes per $100 of value of those farms in-Tasie 72: Taxes AND VaLue oF OwNER-OPERATED Farms FoR WHICH TAXES WERE REPORTED, BY STATES, 1024 Source: United States Department of Agriculture, Technical Bulletin No. 172 Computed by National Industrial Conference Board Geographical Group Stata United States. ... New England....... oo. Mane. cs suppers New Hampshire . . .. Vermont. ........... Massachusetts. .. .... Rhode Island. ....... Connecticut. ........ Atlantic. ............ New York. ......... New Jersey. ........ Pennsylvania. ....... East North Central. ......... Ohio. .......covnn.. Indiana............ linois............ Michigan........... Wisconsin. .......... West North Central. ......... Minnesota. ......... loma. ves soenenss Missouri. ........... North Dakota. ...... South Dakota. ...... Nebraska. .......... Yansas. . Middle y Value of Lands and Buildings in Thousand Dollars 1,820,2/ 694,414 177.314 75,185 103,444 195,656 17,373 125,442, 1,794,203) 917,847 156,709 719,647 5,078,174 1,021,434 698.354 1,241,066 813.278 1,304,042 5,947,602 1,149,322 (833,025 883,390 291,348 359,323 803,389 £07307 Taxes Reported on Farm Land and Buildings mn Thousand Dollare 11.9 3,175 1,559 1,757 3.496 | 214 1,571! 28,003 13,515 2.673 11,815 73,971 16,602 13,858 10,916 14,939 17.656 “1,133 13,943 17,487 6.915 4,720 $131 6,411 Taxes pe $100 of Value Index Numbers United States = 100 22 70 79 2.07 70 79 73 25 “6 47 ‘1 ‘4 45 1.63 1.98 nO 00.0 139.3 146.7 169.7 139.3 ‘46.7 100.8 102.5 27.9 -20.5 140.2 134.4 119.7 133.6 162.3 72.1 150.8 110.7 84.4 99.2 77.9 63.9 132.8 94.3 66.4 a7 153 121 | 05 1.67 i : 1 Index Numbers roup = 106 100.0 105.3 121.8 100.0 105.3 724 73.5 100.0 94.2 109.6 105.1 100.0 111.6 135.6 60.3 126.0 2.5 100.0 117.5 92.2 75.7 157.3 111.7 78.6 118 ¢§ THE FARM TAX PROBLEM IN MISSOURI 221 TasLe 72: Taxes AND VALUE oF OWNER-OPERATED Farms ror wHICH TAXES WERE REPORTED, BY STATES, 1924 (continued) Source: United States Department of Agriculture, Technical Bulletin No. 172 Computed by National Industrial Conference Board Geographical Group State South Atlantic. ..... . -.... Delaware. ......vvnn Maryland. .......... District of Columbia . Virginia. .....0000es West Virginia. ...... North Carolina. ..... South Carolina. ..... Georgia. .......couovns’ Florida. ............ East South Central. ......... Kentucky........... Tennessee. .........-Alabama............ Mississippi. ........-West South Central. ......... Arkansas. .......... Louisiana. .......... Oklahoma. ......... Texas. ...c o0vnnvns Mountain. ........coeeeenans Montana. .......... [daho.............. Wyoming. .......... Colorado. .......... New Mexico. ....... ArIZONA. cv vev nnn nns Utah... ..ooant Nevada... . Cees Washington. ..... .. Oregon. ........ .. California. . Value of Lands and Buildings in Thousand Dollars $2,230,891 27,028 178.803 1.177 587,064 230,452 196,061 179,666 250,882 279,758 227.206 452.570 149,228 168.286 (57,122 667,607 213,348 133,572 289,426 031.261 877,040 149,117 184,093 50,354 225.879 51,071 52,296 125.527 38,703 2,303,108 351,722 207,459 743.927 Laxes Reported on farm Land and Buildings in Thousand Dollars Taxes per £100 of Value $21,811 $0.98 273 1.01 2183| 120 161 1.36 $213, 72 | 782] 11 5635 . 1.14 L767, 98 sooo! 120 L982 71 4863 1.21 1950; 1.09 50331 12 1,749] 04 ni31) 99 7.623: 1.06 2,550] 1.20 2065 1.55 £465 1.54 8,543 .83 11,872 1.35 18820 1.26 26801 1.46 497. 99 3,296. L146 600) 1.17 744 42 1,745 39 48 33363 4 a R44 if index Numbers United States = 100 50.0 82.8 98.4 111.5 59.0 99.2 93.4 80.3 98.4 58.2 | 99.2 89.3 91.8 85.2 163.1 86.9 98.4 127.0 126.2 68.0 110.7 103.3 119.7 81.1 119.7 95.9 116.4 113.9 91.0 90.2 1123 Dar Index Numbers Group=100 100.0 103.1 122.4 138.8 73.5 123.5 116.3 100.0 122.4 72.4 100.0 90.1 92.6 86.0 164.5 100.0 113.2 146.2 145.3 78.3 100.0 93.3 108.1 73.3 108.1 86.7 105.2 103.0 82.2 100.0 126.4 112.7 93.6 cluded in the sample for each state. The figure for Missouri as computed is $0.78 per $100, which is a tax rate on true value as reported by the farmer to the United States Department of Agriculture. That this rate is fairly representative of the state as a whole can easily be demonstrated. On the basis of the assessment ratio of 58% as shown in Table 51, a rate of $0.78 per $100 of true value would be equivalent 1See p. 174. 222 THE FISCAL PROBLEM IN MISSOURI to a ratio of $1.34 per $100 of assessed value. It will be recalled that the State Survey Commission estimated that the average rural tax rate in the state was $1.35 per $100. In a previous section it was pointed out that the average rate on rural property in the state appeared to be between $1.30 and $1.40. Also in testing the estimate of total taxes on all farm property, the estimate as made by the United States Department of Agriculture was divided by the total valuation of lands, and the result was $1.35 per $100 of assessed value. In making the latter calculation, it was assumed that the valuation of lands not included in farms would be offset by the value of livestock and other personal property of farmers that is assessed for taxation. These various calculations and estimates indicate that an average rate of $1.35 per $100 of assessed value 1s approximately correct. On the basis of the tax rate on true value as shown in Table 72, Missouri ranked forty-seventh among the states, counting the District of Columbia as a state. Only Virginia and Florida showed a lower ranking. Missouri ranked last among the states in the west north-central group. On the basis of index numbers, taxes in Missouri were only 63.9% as high as those on the average owner-operated farm in the United States, while in relation to taxes on owner-operated farms in the west north-central group, taxes in Missouri were found to be equal to only 75.7%, of the average for the group. In view of the fact that the sample for Missouri was very large and included farms from all sections of the state and that the samples used for all other states were highly representative, it may be affirmed that the data in this table are more conclusive than any other that have been presented. The fact that the data in this table are six years old does not affect appreciably their value for purposes of comparison. In certain states, there have been some changes in the tax system that might tend to cause taxes on farm property to increase or decrease at a relatively low rate or to remain practically stationary, but, on the whole, it is doubtful that such changes would cause any particular difference in the conclusions that would be derived from Table 72. if the data were for a more recent year. The net rent studies, the supplementary data introduced as THE FARM TAX PROBLEM IN MISSOURI 223 corroborative evidence for the conclusion derived from the former, and the data for owner-operated farms all point to the same conclusion, namely, that taxes on farm property in Missouri are relatively low compared with those in most of the states in the same general section of the United States. Also, the data definitely indicate that taxes on farm property in Missouri are lower than the average for the United States as a whole. Tue Nature oF Missourr’'s Farm Tax ProBLEM Although it has been demonstrated that the general property tax on farm property in Missouri is low as compared with that in other states, it does not follow that the state does not have a farm tax problem. A later table in this study shows also that the total taxes per motor vehicle are lower in Missouri than on the average motor vehicle in the United States. It might be inferred from the data previously presented and the relatively light motor vehicle taxation in the state, that farm taxation in Missouri is not a problem at the present time. There is a farm tax problem, however, and an attempt will be made in this section to give some indication of its nature through an analysis of the contributing factors. Declining Income, Lack of Flexibility in Assessed Valuations, and Differences in Productiveness In the first place, there is the factor of declining net income from agricultural operations. Since 1920 there have been varied movements in the prices of agricultural products, but on the whole the trend has been downward. In 1930 the net income of Missouri farmers in many sections has been particalarly small, as a result of a very severe drought which affected many of the agricultural sections of the state. In such a year it is only natural that a given amount of taxes should constitute a more serious burden than in years of good crops and fair prices. Theoretically, the value of a farm or other property represents a capitalization of income. The income that is capitalized is not that for one year only, but in arriving at a 224 THE FISCAL PROBLEM IN MISSOURI capital value past and future incomes are also considered. The result is that in a period in which the income is very low or is declining rapidly the valuation will not represent a capitalization of the income at the time. Since past, present, and future incomes are considered in the capitalization process, it follows that the variations in capital value are not so marked as are those in income. In other words, in a period of agricultural depression the decline in the value of the property tends to lag behind the decline in income. Therefore, a tax measured by the value of property in general absorbs a larger proportion of income in a period of declining income than in a period in which income remains more or less constant. Another factor may be traced to the assessment process. Not all assessors make allowance for the decline in capital value in assessing property. While the value of lands has been decreasing in recent years, it is doubtful that the decline in assessed valuations has kept pace with the decline in real values. One aspect of this problem is that when a given valuation is placed on the tax books, the average assessor does not increase it or decrease it unless there has been a marked change in the status of the property. The value of every farm in Missouri changes somewhat from one June first to the next, but it is doubtful that the valuations of even one half of the farms in many counties are changed from year to year, when the same assessor remains in office, unless the valuation of lands in an entire county is changed during the equalization process. There is a wide variation in the profitableness of agriculture among the several sections of the state. For example, in the better agricultural sections in northwestern Missouri and in the Missouri River Valley, it is doubtful that the farm tax problem is serious in the case of those farmers whose property is assessed at average figures for the county and other local governments to the expenses of which they contribute. Relatively good farms mean high valuations on which property taxes are computed. High valuations result in a relatively low rate of local taxation. On the other hand, it must be admitted that agricultural land in a large number of counties in southern Missouri is not of high quality. Assum- THE FARM TAX PROBLEM IN MISSOURI 225 ing that valuations represent the same percentage of true value as found in the better agricultural counties, the result must be a higher tax rate, provided local governmental services of equal quality are desired. Any proposal to shift a part of the present tax burden of the farmers to some other group would have to take account of the difference in agricultural conditions in the several sections of the state. A transfer of burdens from one group to another should not be based upon the assumption that all farms in the state are overtaxed, for very little evidence could be presented in support of such a contention, Variations in Assessments Probably the most important phase of the farm tax problem is the variation in assessments among the several counties of the state, as well as within the same county or school or other special district. Data indicating wide variations among the counties, as shown by ratios of assessed valuation to sales value, were presented in a previous chapter. The particular significance of the, intercounty variations lies in the fact that the state levies a general property tax. While the state rate on property is not high, to the extent that there is a lack of uniform assessment standards throughout the state, farms in one section may contribute more than their share to the cost of state government, and farms in other sections, less than their just share. Changes in administration, which were discussed in Chapter VI, should tend to eliminate the intercounty variations. Unquestionably a uniform standard of valuation is desirable throughout the entire state, regardless of whether or not the state continues to levy a general property tax. As previously stated, assessors do not always adjust the valuation of farms in the proportion that their real values increase or decrease. Data compiled for Boone County and shown in Table 73 indicate that there were considerable variations from year to year in the ratios of assessed valuation to sales value in that county for the period 1923 through 1928. On the other hand, the transfers of farm property in that county for the years 1910 through 1914 showed an almost uniform ratio from year to year. The decline in the 226 THE FISCAL PROBLEM IN MISSOURI TasLe 73: Ratios oF ASSESSED VALUATION TO SALES Varvg, Farms iv Boone County, Missouri, 1910-© 1914 anp 1923-1928 Source: Mclean, E. E. The Ratio of Assessed Value to Sale Value of Real Property in Boone County, 1910-1914 and 1923-1928 Ratio of Assessed Valuation to Sales Value. Per Cent Year 910. 011 vw» Number of Transactions 330 258 7 2¢2 235 1.362 19°. 1910t0 =~ ~~ 1923. .... 1924. .......... 1925... .... 1926. iii een 1927. oii 1928... .. 1993 to 197° 101 65 77 7 63 62 59 ps ratios for the years 1925 through 1928 in this county may indicate a conscious attempt on the part of those in authority to adjust the valuations of farm property so as to conform with the average for the state as a whole. Thus, in 1928 the ratio as computed from the data for 75 rural property transfers was 59%, as compared with 779, in 1925. The ratio of this county for 1928 is close to the average for farm properties in the state in 1929. On the other hand, the ratios for the earlier years were unquestionably much higher than the average for farm properties in the state. Another form of variation in farm assessments involves differences in several sections of the same county. The data for Boone County shown in Table 74 indicate the nature of this type of variation. In this instance the variations were found to be relatively small, the minimum being 649, for township 45, and the maximum, 75%, for township 51. Table 75 shows the rural transfers in Boone County for the years 1923 through 1928 with the data grouped according to the acreage of the farms. In view of the wide difference in ratios between the smaller and the larger farms and the fact that when all of the farms were grouped into four classifications the ratios increase as the size of the farms increases, the THE FARM TAX PROBLEM IN MISSOURI 227 TasLe 74: Ratios oF ASSESSED VALUATION TO SALES VaLue, Farms in Boone County, Missourt, CLassI-F1ED BY Townsuiprs, 1923-1928 Source; McLean, E. E. The Ratio of Assessed Value to Sale Value of Real Property in Boone County, 1910-1914 and 1923-1928 Township | { L Number of Transactions 71 ££ ¢ i - - Number of Acres ty 101 3,991 $520 79 gg Sales Value ,101,100 20.380 oan ws 1 137 67h Assessed Valuation 04,004 140,190 182,874 288,132 198,936 207,762 177.270 Ratio of Assessed Valuation to Sales Value Per Cent i 7 TaBLE 75: RaTios OF ASSESSED VALUATION TO SALES VaLue, Farms 1n Boone County, Missouri, Farms CrassIFIED ACCORDING TO Size, 1923-1928 Source: McLean, E. E. The Ratio of Assessed Value to Sale Value of Real Property in Boone County, 1910-1914 and 1923-1928 Acres Number of Transactions 5t0 21 to 60 208 61 to 100 122 101 to 140 47 141 to 180 30 181 to 220 1R 221 to 260 61 and over! Number of Acres 1,058 8,649 10.034 5,630 4237 <4 7a Sales Value $80,630 130,475 492,275 257.400 239,965 186,875 39,800 122.350 Assessed Valuation H45,012 270,156 323,886 167,838 182,880 133,104 38,460 08.028 «atio of Assessed Valuation to Sales Value Per Cent YS) 16s 75 1350. conclusion may be reached that in this county large farm properties were relatively overassessed as compared with the smaller. An analysis of the 1922 and 1929 data used in preparing Tables 49 and 51 showed the same tendency. The results of the analysis of these data, however, were not so satisfactory as those obtained in the study of farm transfers in Boone County, in that each group did not show a higher ratio than the preceding group when the farms were classified according to size. Because of the relatively small sample for certain counties, the results of the analysis of the 1922 and 1929 data are not presented in statistical form in this study. The best results could be obtained only if the data were 228 THE FISCAL PROBLEM IN MISSOURI available for a period of years, as in the case of the study in Boone County. There is a sound reason why one might expect to find that the larger farms would be relatively overassessed in a period of declining land values, particularly when, as in Missouri, the land and buildings are jointly assessed. The relatively higher proportion of value attributable to farm buildings in the case of many small farms is likely to result in discrepancies in assessments, if adjustments in farm values are made on the basis of declining land values as the sole or principal factor. The tendency on the part of the assessor will be to decrease the value of all farm properties in about the same proportion, whereas the value of the large farms has really been affected to a greater extent than that of the small farms. If, as seems probable, the general property tax is to remain for some time to come the principal source of local revenue, it is highly desirable that assessments of farm properties should be placed upon as uniform a basis as possible. Variations among the several counties and within the same county or smaller governmental division should be reduced to a minimum. Probably the only way in which this result can be accomplished is by means of a system of effective central supervision of assessments, as outlined in Chapter VI. The taxes paid by farmers should be levied on uniform valuations, and, as soon as assessments are placed on a fairly uniform basis throughout the state as a whole and therefore within the various counties and smaller governmental divisions, the burden of farm taxes will be distributed more equitably. The Taxation of Farm Mortgages Farm mortgages in Missouri are taxable to the mortgagee at general property tax rates. In assessing farm property that is mortgaged, no allowance is made on account of the mortgage. The result is that the combined assessment of a farm and the mortgage on it may be greatly in excess of the assessment for a similar farm on which there is no mortgage indebtedness. Consequently, it is contended that the farmer operating a mortgaged farm is discriminated against as compared with the farmer who owns his property outright. The THE FARM TAX PROBLEM IN MISSOURI 229 mortgagee will naturally endeavor to shift the tax levied on ‘he mortgage to the mortgagor if at all possible. As a matter of protection, mortgagees ordinarily have farm mortgages recorded, and they are therefore reached for taxation more easily than many other forms of intangibles. The assessors through the exercise of some little initiative can obtain information concerning the notes described in these instruments and unreleased on June 1, the assessment date. In some counties the county court has furnished the assessor with lists of deeds of trust unreleased as of June 1, and the State Tax Commission has repeatedly urged that the assessors make every effort to reach this form of property. In view of the relative ease with which the information can be obtained, there is little wonder that a larger proportion of farm mortgages than of intangibles in general 1s reached for taxation under the general property tax. Even if a farm mortgage is not assessed, there is always the likelihood that it may be assessed at any time. The result is that this factor is taken into account when negotiations are made between the mortgagor and the mortgagee, and the interest rate may be predicated upon the assessment of the mortgage, even though it is not later assessed. In such a case the mortgagee naturally obtains a differential advantage in the return from his investment. PossiBLe CranNGEs IN Farm Taxarion It is generally believed that the most effective results can be obtained by the separate assessment of farm land and buildings. About two thirds of all the states provide for the separate listing of land and buildings on the assessment rolls. Land values frequently change much more rapidly than the values of the buildings, and it is only by means of separate assessments that the problem can be adequately met. It would therefore seem advisable to abolish the practice of joint assessment. If this change were made, the problem of obtaining uniform assessments in any county or other local government should prove much less troublesome. Every effort should be made to place assessments of farm property on a uniform basis throughout the state. This, of 230 THE FISCAL PROBLEM IN MISSOURI course, implies that farm property in a given local governmental division will be assessed with a high degree of uniformity. It is desirable also that farm property should be assessed on a basis comparable with that on which urban real estate and other forms of tangible property are assessed. The results of the present system indicate that a much higher degree of uniformity can be attained, and it is believed that the only practical solution lies in supervision by a state tax commission empowered to reassess an entire county or smaller division as well as individual properties. In another chapter changes in the tax laws are discussed, which would have the effect of discontinuing the taxation of all intangibles at general property tax rates and reaching this form of property by means of the income tax. Farm mortgages are correctly included in the intangible category, and, if such a plan were adopted, they would be taxed only on the basis of income. CHAPTER VIII PUBLIC SCHOOL FINANCE UBLIC school finance is a very live issue in Missouri at the present time. It was recently recommended that the state government undertake to equalize educational opportunities throughout the state by a program that would involve the expenditure by the state of considerable additional sums each year in the form of state aid. In effect, the adoption of such a program would transfer to the state government a substantial part of the burden now borne by the school districts. The proposal is advocated as a means of extending to all public school pupils in the state the opportunity to obtain a public school education comparable with that now provided only in certain parts of the state. The plan does not provide for absolutely uniform educational standards throughout the state, but it does provide that certain minimum standards shall be established and maintained. It has been estimated that the additional state aid over a ten-year period would amount to $100.6 million,! if the plan were adopted. This sum is equivalent to approximately two times the expenditures for all public schools for the school year ended in 1929. Before examining the proposed plan in detail it is desirable to consider the expenditures for public schools in Missouri over a period of years, the present system of state aid, and the expenditures of the state for public school purposes. PusLic ScrHooL EXPENDITURES In the school year ended June 30, 1929.2 public school expenditures in Missouri amounted to 351.3 million, of which $30.8 million was for teachers’ salaries. It may be seen in | Exclusive of $2.1 million of additional building aid. 21n referring to school years, the designation “school year ended” is not used in the remainder of this section. 232 THE FISCAL PROBLEM IN MISSOURI TasLe 76: Functional DistriBuTioN oF PusLic ScrooL ExpeNDITURES IN Missouri, 1915-1929 Source: Reports of the Public Schools of the State of Missouri Computed by National Industrial Conference Board Year Ending | June 30 Teachers i Incidental | Building Wages Expenses Purposes $10,840,862 4 11,362,964 N7 11,654,376 918 13,498,882 1919 14,207,200 00 16,831,754 91 21,352,796 02 24,303,157 1923 24,569,268 1924 24,499,347 1925 26,849,061 1926 28,008,577 1927 28,605,160 1928 29,638,311 1999 30.847.374 “61,07% 5,542,560 3,709,997 4.387.226 4,485,939 5,432,867 6,677,720 7,644,421 8,176,034 10,104,416 8,322,619 1,663,998 9,631419 | 9.791.776 0 £14 270 45,360,598 4,584,931 4,368,790 4,929,503 3,249,279 5.783.431 7,138,247 8,552,361 9,565,140 11,090,590 13,588,379 13,244,531 16,917,461 13,065,083 10.949.967 Total Expenditures $19,662,728 19,490,455 19,733,163 22,815,611 21,942,418 28,048,052 35,168,763 40,499,939 42,310,442 45,694,353 48,760,059 52,917,106 55,154,040 52,495,170 "1.311.573 -a * Die+-"" ETERS 5 1917 1918 1919 64. 1920 50.0 1921 60.7 922 AN.0) 1923 1 1924 23.5 1925 5.0 1926 2.9 1927 51.9 1928 54" na on ) J a3 7 Q fr “ad 21.6 14.8 20.6 20.3 21.1 22.6 43 279 25.0 307 “0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Ney i} NO 0 Table 76 that the total expenditures on account of public schools were more than two and one half times as large in 1929 as in 1915, while the total for teachers’ salaries was almost three times as large. Expenditures for building purposes have been more irregular than have those for teachers’ salaries. The latter showed an almost uninterrupted increase throughout the period of fifteen years, while expenditures for building purposes showed rather wide variations, as did those for incidental purposes. For example, total outlays for building purposes were much smaller in 1929 than in 1927, and decreased expenditures for buildings accounted for the decline in the total after 1927. PUBLIC SCHOOL FINANCE 233 Too much significance should not be attached to the variations in the percentage distribution of total expenditures from year to year. For example, the increase in the proportion for teachers’ salaries between 1927 and 1929 might appear unusual, but on closer analysis the increase is found to be due largely to the decline in building expenses from about $16.9 million for 1927 to $10.9 million for 1929. In other words, the increase in teachers’ salaries was probably not so significant as the decline in the annual expenditures for building purposes. It should be clearly understood that the expenditures shown in Table 76 are not financed exclusively out of funds from local sources. Each year the state distributes considerable sums to the local governments for various purposes. The present system in accordance with which state funds are apportioned for public school purposes is discussed in the following section. State Alp ror PusLic ScrooLs The numerous statutes governing the disbursements made by the state to the local governments for public school purposes were not enacted as the result of a definite plan, but were superimposed upon one another as the various needs became urgent. Consequently, it cannot be said that the distributions are made in such a way that a high degree of equalization in educational opportunity is effected. Before andertaking an analysis of the present forms of state aid, it is desirable first to consider in detail the several state school funds, as well as a functional classification of state school grants and the bases of apportionment that are used. State School Funds in Missouri There are three important school funds; namely, the public school fund, the state school moneys fund, and the county foreign insurance tax fund. The public school fund consists of state certificates of indebtedness amounting to $3,159,000 and a few hundred dollars additional obtained from other sources. The income from this fund is credited to the state school moneys fund. The latter is the most important fund. 234 THE FISCAL PROBLEM IN MISSOURI In addition to the interest on the certificates of indebtedness in the public school fund, one third of the receipts into the general revenue fund are credited to this fund each year, the only exception being certain minor receipts. A small part of this fund is used to meet back payments and claims. Approximately 409, to 509, of the total is distributed for various special projects, and the remainder is apportioned among the several school districts in the form of teachers’ quotas and pupil grants. The third state school fund is officially known as the county foreign insurance tax fund. To this fund is credited one half of the proceeds of the state tax of 2%, on the gross premiums collected in the state or on account of business done in the state by insurance companies not organized under the laws of the state. While the three funds account for the greater part of the money that the state distributes for school purposes, certain appropriations from the general revenue fund are made to pay salaries and expenses of the state department of public schools and to finance other projects. These appropriations are in addition to one third of the receipts of the general revenue fund that are credited to the state school moneys fund. The additional appropriations for special projects are not made in certain years because of a shortage of funds, and in such cases the procedure is to charge the appropriations to the state school moneys fund. Functional Classification of State School Grants and Bases of Apportionment On the basis of functions, the various state school grants may be classified into five groups; (1) administration, (2) stimulation, (3) compensation, (4) equalization, (5) general relief. Under administration grants may be included the salary and expense appropriations for the state department of public schools, including public school inspectors. These appropriations are what might be called flat appropriations, that is, the legislature specifically appropriates certain amounts for the purposes indicated. The other form of grant that may be classified under administration is the appropriation of $400 to each county by the state to cover the state’s portion of the salary of the county superintendent. 1R. S. 1919, Section 11352. PUBLIC SCHOOL FINANCE 235 The stimulation grants are four in number. A lump sum of $1,500 per school is granted to high schools that maintain teacher training courses, provided that the State Superintendent of Public Schools designatesonly one high school in a county to carry on this type of work. If more than one high school is approved in a county, the total state aid may not exceed $2,400, to be divided equally among the several schools.! A second form of stimulation grant consists of state aid to city normal schools, which are established in cities having a population of 75,000 or more by the board of education of the school district for the purpose of training teachers for the elementary schools of the city.” A two-year professional course is required before any city school district can obtain this form of state aid. The method of apportionment is complicated. In general, the factors used in determining the apportionment are (1) appropriations for teachers’ salaries in state normal schools, (2) the number of teachers employed in the public schools of the state, and (3) the number of teachers employed in the public schools of the particular city. In addition to the two forms of stimulation grant that have been considered, certain grants are made for the purpose of training teachers for negro schools. The method of apportionment is not specified by law and in practice is left to the discretion of the State Superintendent of Public Schools. The fourth form of stimulation grant is for vocational education. The state matches the federal grants per teacher under the Smith-Hughes Act in accordance with the provisions of that act. The compensation grants consist of special allotments for orphan tuition and for teachers engaged in instructing physically handicapped children. To be eligible for aid in the first case, a town or rural district must be educating fifteen or more orphan children supported by a philanthropic organization. The amount of state aid is $2.75 per month for each child in regular attendance, but the allotment may not exceed two thirds of the average annual instruction cost per pupil. State aid for the education of physically handicapped 51 2 S. 1919, Sections 11299 and 11300, as amended by Session Laws, 1921, pp. 2 R. S. 1919, Sections 11309 and 11310. 236 THE FISCAL PROBLEM IN MISSOURI children is extended only to districts in which there are ten or more blind, deaf, or crippled children. The aid is $750 for each teacher that is wholly employed in instructing such children. The amount of state aid may not exceed two thirds of the amount actually paid the teacher. Under certain conditions state aid of $750 is granted on account of each teacher employed in instructing speech defectives; and special aid of $300 is granted for each teacher engaged in instructing pupils who are subnormal or mentally deficient. The so-called equalization grants consist of aid to rural schools, aid to consolidated districts, aid to high schools, and aid in maintaining ninth and tenth grades in certain districts where high school facilities are not available. Certain conditions must be fulfilled before a rural school may receive state aid! An eight months’ term is required. A district employing one teacher must have an assessed valuation of $75,000 or less and must levy $0.65 per $100 of valuation for school purposes, not more than $0.25 of which may be used for incidental purposes. Also, the district must have maintained an average daily attendance of fifteen or more pupils during the previous term; or, if less than fifteen, an average daily attendance of 659, of the last enumeration of the district must have been maintained. If these conditions are met, a one-teacher district may receive a maximum aid of $300 or as much thereof as is necessary to maintain an eight months’ term of school at the following salaries: $60 per month for a teacher with a third grade certificate, $70 per month for a teacher with a second grade certificate, and $80 per month for a teacher with a first grade certificate. In districts employing two or more teachers, the levy requirements are the same as for a one-teacher district, but the valuation must not exceed $125,000. The average daily attendance during the last term must have been forty or more pupils, and no district organized after January 1, 1913, and having an area of less than six square miles may receive this form of aid. If these conditions are met, a district employing two or more teachers may receive the maximum aid of $500, but a district receiving such aid cannot pay salaries in excess of those prescribed for the one-teacher districts. 1 R. 8. 1919, Section 11211, as amended by Session Laws, 1921, pp. 637f. PUBLIC SCHOOL FINANCE 237 A special form of state aid is provided for rural school districts with assessed valuation of $50,000 or less and average daily attendance of less than fifteen! The special aid granted is for the purpose of educating the children of such districts in other districts. Before this aid may be received the district must levy $0.65 per $100 of assessed valuation. The money so obtained together with the amount received from public funds and cash on hand is first applied to the cost of transportation and then to the cost of tuition. [f the district does not have a sufficient amount to meet all tuition costs, the state grants special aid in an amount sufficient to provide for keeping the children in school for a term of at least eight months. The amount of state aid in no case may exceed actual cost of tuition, and the actual cost of tuition may not exceed the pro rata maintenance cost for the preceding year in the district or districts attended. It is also provided that the transportation costs shall be reasonable, and the decision of the State Superintendent in this matterisfinal. State aid to consolidated districts? is in the form of a guarantee per pupil in average attendance during the preceding school year. For a district that levies a school tax of $1.00 per $100 of assessed valuation for teachers’ salaries and incidental purposes the guarantee is $50 per pupil, while for a district that levies a tax of $0.65 for the same purposes the guarantee is $40 per pupil. The amount of state aid is based apon the difference between $50 or $40 per pupil and the proceeds of the school tax plus county, township, and state funds and cash on hand. For example, if there are one hundred pupils in average atendance in a district that levies $1.00 per $100 of valuation on an assessed valuation of $300,000 the guaranteed amount is $5,000, of which $3,000 would be obtained from the tax. If funds from the other sources amount to $1,000, the state aid under this section would be $1,000. Special provision is made for state aid to certain consolidated districts for the maintenance of elementary schools.® LR. S. 1919, Section 11212. 2 Session Laws, 1925, p. 331. 3 Session Laws, First Extra Session, 1921, pp. 184 f. This section is practically obsolete, but it was never repealed. In a letter dated Oct. 31, 1930, Mr. Chas. A. Lee, State Superintendent of Public Schools, stated “I do not recall but one instance in the last eight years when this section was taken into consideration ‘n apportioning the state school fund.” 238 THE FISCAL PROBLEM IN MISSOURI The conditions requisite for the grant and the basis for aid are the same as for rural aid to a one-teacher district, except that there is no limitation as to assessed valuation. However, no district can receive aid in excess of $900 for its primary schools. The statute is not applicable to consolidated districts in which any incorporated village, town, or city is located. In addition to the two forms of aid to consolidated school districts, it is provided that the state shall contribute to the cost of a school building and equipment for a consolidated district to the extent of one fourth of the cost, with a maximum limit of $2,000 for any one district! Certain requirements must be met. State aid to high schools is also based upon assessed valuation.? In order to become eligible for high school aid, a district must fulfill six conditions: (1) the maximum levy of $1.00 per $100 valuation must be in effect; (2) an approved high school must be maintained; (3) a salary of at least $40 a month must be paid to each teacher; (4) non-resident pupils must be admitted on payment of a reasonable fee; (5) an average daily attendance of at least fifteen must be maintained; and (6) the school must offer an approved course in agriculture. Information concerning the organization of the district must be furnished before any aid is granted. The grants are as follows: $800 per year to a district with an assessed valuation of less than $300,000; $600 per year when the assessed valuation is between $300,000 and $400,000; $400 per year when the assessed valuation is between $400,000 and $600,000; and $200 per year when the assessed valuation is more than $600,000. The aid granted may not exceed one half of the expenditures for teachers’ salaries in the previous year, and a district is not eligible for this form of aid if it receives any other special high school aid from the state. A special statute provides for the granting of state aid of $800 per year to a district that proposes to establish a high school. Such aid is granted only when it is shown that there is no school district in the county, the assessed valuation of LR. S. 1919, Section 11263. 2R. S. 1919, Section 11295. PUBLIC SCHOOL FINANCE 239 which is more than $300,000, and that no approved high school in the county maintains an average daily attendance of fifteen pupils. Other detailed special provisions are applicable! Districts in which high school facilities are inaccessible and there are three or more eighth grade graduates may receive state aid for the purpose of maintaining the ninth and tenth grades? The statute provides that if funds from other sources, including the maximum district levy of $0.65, are insufficient to employ a first-grade teacher, the state supplies the deficiency. Because of the indefiniteness of the law, the State Department of Public Schools has formulated standards as to curriculum, building, salaries, professional preparation, and so on, which must be met in order to receive state aid. The distribution to the counties from the county foreign insurance tax fund, the distribution on the basis of allotments to teachers, and the pupil-attendance quotas may be classified as general relief grants. The county foreign insurance tax fund is distributed to the counties, including St. Louis City, on the basis of the number of persons under twenty years and over six years of age. Before funds may be received from this source, free textbooks must be provided. If free textbooks are not provided, the funds are used for road purposes. The teachers’ quota apportionment is based upon the number of teachers in each district, but certain special provisions are applicable. For each full-time principal, supervisor, and teacher, $50 per year is allotted, but the amount is reduced to $25 for a teacher in any district in which the average daily attendance in the preceding year was less than fifteen pupils. Each teacher employed less than nine tenths of the school term but more than one half is granted $25. The $50 per teacher apportionment is increased to $100 for each teacher whose salary is $1,000 or more, but in the case of a district that employs only two teachers, one white and one colored, the apportionment is $50 per teacher. No teacher, principal, or supervisor who is not paid from public funds of the district shall be counted. The balance of the state school moneys is apportioned each -R. S. 1919, Section 11296. 2 Session Laws, 1923, p. 177. 240 THE FISCAL PROBLEM IN MISSOURI year on the basis of aggregate attendance. A pupil-days apportionment factor is obtained by dividing the amount available by the total number of days attendance of all pupils in the public schools, and it follows that the apportionment to each district then equals the pupil-days apportionment factor times the number of days attendance of all pupils of the district. In other words, the apportionment to any district depends upon the number of pupils and the average daily attendance. The law specifically provides for allowance on account of days attendance lost because of a school being dismissed by order of the Board of Education. The teachers’ quota and pupil-days apportionments are subject to several limitations. Before a district is entitled to aid, it must levy a tax of $0.40 per $100 of assessed valuation, unless the assessment of a smaller amount together with the moneys received from the public funds shall amount to $350. An eight-months term also is required, provided that the tax of $0.40 and the public funds will be sufficient to maintain the school for a term of that length’. Expenditure Analysis of State School Moneys The state school moneys fund, as previously remarked, is the most important state school fund in Missouri. Although the data are not entirely comparable from year to year because of the fact that certain items are not always charged to the state school moneys fund, an expenditure analysis of the state school moneys provides an interesting approach to the apportionments by the state for public school purposes. Table 77 shows the expenditures chargeable to this fund in the school years 1925 to 1929, inclusive. The total expenditures in 1929 amounted to $4.9 million, a larger amount than in any other year covered in the table. The difference between 1929 and 1927 and the earlier years is even more significant than would appear from the totals, since in 1929 the appropriations for school inspectors, county superintendents’ salaries, and aid in maintaining teachers’ training courses in high schools were not charged to this fund. The result is that the amounts available for teachers’ quota and pupil-days apportionment were much greater in 1929 than in 1927. 1 R. S. 1919. Section 11179. Nd » — TapLe 77: EXPENDITURE ANALYSIS oF “STATE ScHooL MoNEYs,” 1925-1929! Source: Reports of the Public Schools of the State of Missouri Expenditure for 1926 ' Supervision of training, not distributed to districts 1. School inspectors, salaries and eXpenses?. ........oieenrr irritates 2. County superintendents’ salaries?. ......... Cee 3. Teacher training for negro schools. ...... ver #8 EY 3a. Physical education. .. “uw Total. ... 1928 1929 $2,906 __ 8,407 11.313 $1,350 4,943 6.293 Back payments and claims 4. Rural high-school deficiency claims?. ........coooviiieininnns 4 pa 5. Claims on account of errors in former apportionments. ...........oceeeens 5. Claim of Willard, C. D., Greene County. ......couiierennnrineninnines 7. Claim of District No. 20, Dallas County. .....cocvuirineienrinmnenins 7a. Claim of District No. 39, Reynolds County. .......... . 7b. Overdrafts........ “ Total. . 180,086 37,250 8,806 13.578 2,079 300 188,892 53,207 | 6,000 25,479 "7300 297 21,382 34,330 "996 32,075 "681 33.063 34,616 Distributed for specific projects 8. Vocational education .........oievininnn B53 n 4 0 9. Aid torural schools. ......c.ovveeiinnnnn RA 10. Aid to consolidated districts. ....... Spe *. Aid to high schools. ......ovvienin innit ’ "Aid in maintaining ninth and tenth grades. ........... .oooeoneeeeee "Aid to districts educating orphans supported by philanthropic organizations. . . "Aid to districts maintaining special classes for defectives. ........... 15. Aid in maintaining teacher-training courses in high schools. .. ... Total 178,055 177,437 171,031 103,054 96.788 76,900 211,097 1,114,362 180,482 316,189 551,438 89,170 159.914 210179 £7,000 317,623 717.997 191,258 357,624 771,015 87,621 188,285 39,122 95,380 216,089 1,946,894 212,352 384,344 997,967 90,255 160,902 38,888 109.027 216,820 399,031 965,411 93,312 179,320 38,370 119.957 1,993,735 2,012,221 General apportionment 16. Teachers’ quota................ 17. Pupil-days apportionment....... Total. .vveveeerurionnen-Grand total. . 1,656,325 828,823 2,485,148 3,808,501 1,683,575 1,723,125 | 1,753,600 | 1,763,175 566,123 321,132 687,682 | 1,087,404 2,249,698 | 3,044,357 2,441,282_| 2,850,579 3113476 | 4,095,792 4,468,393 | 4,903,709 1 School years ended June 30 of calendar years as indicated. 2 The appropriations for this item are not always charged to the state school moneys fund. \ The amount shown for this item was in excess of apportionment and was paid out in error. 242 THE FISCAL PROBLEM IN MISSOURI Since the pupil-days apportionment is in the nature of a residual, the total available from year to year varies considerably. For example, in 1929 the total distributed on this basis was more than three times as great as in 1927, and the amount distributed in 1928 was more than twice as large as in 1927. On the other hand, the teachers’ quota apportionment showed a steady increase throughout the period, reaching a maximum of almost $1.8 million in 1929. Of the distributions for specific projects, aid to consolidated districts accounted for the largest amount in all years after 1925, and aid to rural schools ranked second in all years except in 1925, when it ranked first. In both 1928 and 1929 aid to consolidated districts accounted for almost one half of the total distributed for specific projects, while in 1925 this form of distribution accounted for only a little more than one seventh of the total. In two of the five years for which data are shown the amount distributed to consolidated districts exceeded the disbursements under the pupil-days apportionment. Table 78 shows the sources of revenue that contributed to the state school moneys fund. The data in this table are for the school years ended in the years as indicated, and the receipts from the specific sources cannot be reconciled with the data in other parts of this study, which are on a state fiscal year basis. Also, the considerable difference between the general property tax receipts as shown in this table and in Table 31 is accounted for by the fact that a large part of the receipts from the state general property tax are not credited to the general revenue fund. The most important state tax that benefits the state school moneys is the income tax, which in all years accounted for a larger part of the receipts into the general revenue fund than any other tax. The inheritance tax ranked second in importance in 1929 and was followed by the general property tax, the corporation franchise tax, and the county foreign insurance tax, in the order stated. Since one half of the receipts from the county foreign insurance tax is credited to a special fund which is distributed to the counties for school purposes, and one third of the remainder benefits the state school moneys, it follows that two thirds of the receipts from this source are distributed for school pur- PUBLIC SCHOOL FINANCE 243 TaBLE 78: Source ANALysis oF Missourl STATE GENERAL Revenue Funp, 1925-1929 Source: Reports of the Public Schools of the State of Missouri Source of Revenue 1927 1 1928 1929 General property tax...... 12,413,097 52,410,260 [ncome tax. .............1 4,004,125! 3,921,905 [nheritance tax........... 2.192,044' 3,157,170 Total of three taxes. .... 8.115,3161 8,609,260) 9,489,335 Corporation franchise tax. . 2,190,643 Incorporation tax. ....... 402,391 County foreign insurance tax| 1,224,947 Express company taX..... 46,847 Total corporation taxes. . 3,864,828 463,193 196,726 1,445 11,737,034/11,539,162112,825,72314,015,527 1925 License taxes and fees. .... Interest on deposits. ...... Miscellaneous receipts... . Total®. . .. Recapitulation of Receipts into State School Moneys Fund Transfer from state revenue | fund os .$3,425,214] 3,912,345] 3,846,388] 4,275,241" 4,671,842 One third unexpended ware house department bal-ANCE. ov vevnranenrnsns One third ordinary receipts into state revenue fund. . interest on school fund cer-HAcAteS. «ov vvannnrens Balance from previous year Refunded amounts........ Transfer from barbers’ fund Transfer from chiropractic fund. ...........n 15.305] 3,862,193] 4,275,241] 4,671,842 187,040] 187,040 .. . 710,838 6112] 25520 8,469 Total. . CL RB 3,808,501 4,113,476! 4,095,792 4,468,393] 4,903,709 1 School years ending June 30 of calendar years as indicated. 2 Does not include following amounts which do not benefit public school moneys: 3492,438, in 1925; $285,033, in 1926; $576,886, in 1927; $92.489, in 1928, and 3441.440. in 1929, poses, provided that the requirement of free textbooks is met in the case of the distribution from the county foreign insurance tax fund. The recapitulation that comprises the lower part of Table 78 shows the manner in which the total credits to the state school moneys fund were derived in each year. The first item in the recapitulation represents one third of the totals that appear in the upper part of the table. Of the other 244 THE FISCAL PROBLEM IN MISSOURI sources, the interest on the school fund certificates is the most important, and the remainder consists of miscellaneous amounts. The total for each year agrees with the total for the same year in Table 77, and the two tables present a complete picture of the expenditures from the state school monevs fund as well as the sources of the credits to the fund. Total State Aid Distributions for Maintenance of Public Schools In order that total state aid apportionments for public school purposes may be compared with maintenance expenditures for all state functions, it is necessary to present the data on a state fiscal year basis. Table 79 shows the total maintenance expenditures of the state and the total apportionments for public school purposes for the years 1924 to 1928, inclusive. The amounts shown for school apportionments include the distribution of the moneys in the county insurance tax fund!, which are apportioned in October of each year, and other allotments resulting from direct appropriations. Apportionments from the state school moneys fund are included in the total, but, since the data are for the years ending December 31, they are not directly comparable with those in Table 77. TABLE 79: STATE SCHOOL APPORTIONMENTS IN RELATION to ToraL STATE EXPENDITURES FOR MAINTENANCE, Missouri, 1924-1928 Source: United States Bureau of the Census, Financial Statistics of States series V ory Te <' Ftzte Expenditure for Maintenance State School Apportionment=Per Cent of Total Expenditures for Maintenance 70 yy ¢ Y According to the data in Table 79, school apportionments in 1928 amounted to almost $6.3 million, or 25.89, of the maintenance expenditures of the state. In the preceding year 23.09% of all maintenance expenditures were accounted for by the school apportionment, while in 1926 the proportion was 1 Tn 1928 there was apportioned $1,160,228 from this fund. PUBLIC SCHOOL FINANCE 245 24.89. It therefore appears that in recent years the state school apportionments comprised approximately one fourth of the expenditures of the state for all maintenance purposes. ANALYSIS OF THE PRESENT SYSTEM oF DISTRIBUTING STATE Ap MoxNEYS The analysis in this section is very largely confined to the Missouri system of distributing funds to the localities for school purposes under the so-called equalization grants. The aid to rural schools, the aid to consolidated districts, the aid to high schools, and the aid in maintaining ninth and tenth grades depend essentially on the assessed valuations in the various districts. In all four cases there is an implied uniformity in assessed valuations that does not exist. To the extent that there are variations in the ratios of assessed valuation to true value, distribution on the basis of assessed valuation must result in inequalities. Another factor in the problem is the extent to which certain types of property =scape assessment. For example, it has been shown previously +hat in a number of counties a large proportion of the motor vehicles escaped assessment in 1927 for taxes of 1928. If in one county 50%, of the motor vehicles are assessed, while in another 909, are assessed, it would naturally follow that cerrain school districts mightreceive state aid towhich they were not entitled. The two factors, differences in assessment ratios and property escaping taxation, are highly important in connection with any system under which funds are distributed to localities on the basis of assessed valuation. This method of distribution places a premium upon low assessed valuations, and the latter are not always indicative of a real lack of ability to support education. There are other factors that are important in connection with the distribution of aid to rural schools. If the valuation in a district shows a tendency to increase to an amount above $75,000, it is to the interest of the district to keep the valuation below that limit. An even more important factor is that many of the poor districts in the state are not eligible for rural school aid. The Attorney General has held that before a district is entitled to this form of aid it must maintain an 246 THE FISCAL PROBLEM IN MISSOURI eight-months term.! Many school districts maintain a much shorter term and are therefore ineligible for rural school aid. In a recent school year 1,008 districts had school terms of less than eight months.? Assessed valuation 1s also the basis for the distribution of aid granted to consolidated districts, to high schools, and for the purpose of maintaining ninth and tenth grades. In each case it is possible for school districts to secure more money from the state if the assessed valuations are kept relatively low. In the case of high school aid, for example, there can be little incentive for a county to increase its assessed valuation to a higher level when it may mean that the high schools within the county will receive smaller apportionments from the state. It may be argued that the equalization procedure by the county and state boards will prevent a district from keeping its assessed valuation at a low level in order to obtain a larger amount of state aid than it could obtain if the valuations were increased. There may be some tendency toward such a result, but the equalization procedure is probably not sufficiently effective to prevent a tendency toward undervaluation for the purpose of obtaining state aid funds. The theory underlying the equalization grants is that there is a uniformity in valuations throughout the state and that school opportunities will be more or less equalized when the state distributesits grants foreducational purposes on the basis of assessed valuations. It is evident that the assumed uniformity in assessed valuations cannot be achieved under the present system. The equalizations, which are often made on a flat percentage basis, can hardly result in establishing a basis so uniform that no school district will receive more or less than it should in the form of state aid. Property escaping taxation and different levels of assessed valuation affect so fundamentally the distribution of the four equalization grants that many injustices must result. Unquestionably these grants aid in maintaining a higher grade of educational work than would otherwise be possible. The question may well be raised. however, whether the fact that one district may 1 Revised School Laws, 1929, p. 237. ! Eightieth Report of the Public Schools of the State of Missouri, 1929, p. 322. PUBLIC SCHOOL FINANCE 247 receive funds to which it is not entitled, while another district receives a smaller amount of state aid or none at all, because property is more generally assessed and the assessment ratio is kept at a relatively high level, doés not make equalization almost impossible and thus defeat the object of the system. The general relief grants are not intended to benefit only the needy districts. In fact, there may be some discrimination against the needy districts. For example, a very poor district with less than fifteen pupils in average daily attendance is entitled to only $25 on account of the teachers’ quota, while districts that maintained an averagedaily attendance in the preceding year of fifteen pupils or more are entitled to $50 on account of each teacher. An offsetting factor, however, is that $25 to a very poor district with only a small school attendance may represent a larger proportion of the total expenses of the district than does $50 to a school district of the better grade. The pupil-days apportionment, as has been stated, depends largely on the residual amount in the state school moneys fund after certain special projects and the teachers’ quota apportionment have been covered. The residual amount varies considerably from year to year, and consequently a district is never certain as to the amount of funds it will receive until all of the other charges against the state school moneys have been determined. While this condition may constitute a handicap, it is difficult to see how it could be overcome without the adoption of some other system of aid that would not be based upon a residual dependent on a variety of factors. Although it appears that the equalization grants rest on an ansound basis and that the general relief grants are not made in accordance with needs, it would probably not be desirable to abolish these grants on the theory that assessed valuation is not a satisfactory basis for distributing state school funds. A school district naturally adjusts itself in accordance with the state distributions that it receives, and if a radical change were made considerable hardship would unquestionably result in certain instances. Nevertheless, it seems highly desirable that the system now in effect be analyzed by those in authority with a view to establishing standards as to assessed valuation that must be met if these aids are to be continued. 248 THE FISCAL PROBLEM IN MISSOURI Tue StaTE Survey Commission Pran of PusLic ScrooL Finance . The recent State Survey Commission has recommended an elaborate plan of school finance, the effect of which would be to transfer a larger part of the cost of the public schools to the state government. Each elementary teaching unit under this plan would be guaranteed a minimum of $900, and each high school teaching unit, a minimum of $1,200. For the purpose of introducing this program, each one-teacher school district, regardless of daily attendance, is to be considered an elementary teaching unit. High schools with an average daily attendance of less than 142 pupils are to count as one high school unit for the first 15 enumerated students, with average daily attendance of 12, and one additional unit for each additional 23 students! The plan not only provides for the guarantee of the amounts per teaching unit as indicated, but also for the stepping up of the amounts until a considerably higher level is reached? For the present purpose, only the initial basis will be considered; that is, the analysis will be based upon a $900 guarantee for each elementary teaching unit and $1,200 for each high school teaching unit. A local tax rate of $0.20 per $100 of assessed valuation would be required before an elementary school district comprising one unit would be guaranteed the minimum of $900. In other words, if a rural school district employing one teacher has an assessed valuation of $50,000 and levies a local school tax of $0.20 per $100 of assessed valuation, or a total of $100, it would be guaranteed the difference between $900 and $100, or $800. It should not be inferred, however, that the plan would provide for 3800 state aid in addition to that now received. The additional state aid would amount only to the difference between $800 and the total of the present state, county, and township aids. The county and township aids are very small in many cases, and it may be assumed that a district such as the one just cited would receive a total of between $700 and $800 from the state. t Report of the State Survey Commission, 1929, pp. 69 f. 2 The present forms of state aid would be gradually eliminated under the proposed plan of stepping up the minimum. PUBLIC SCHOOL FINANCE 249 It is claimed that the plan would result in a more equitable distribution of the burden of public school support, that tax burdens would be shifted so that they would be more nearly in conformity with taxpaying ability, and that property would be relieved of a part of its excessive burden, since local rates on property would be reduced. In other words, tax burdens, as well as educational opportunities, would be equalized by the adoption of the minimum program, according to the proponents of the plan. Stress is placed upon the guarantee of educational advantages that at present do not exist in many parts of the state, and the fact that taxes would be equalized is more or less incidental to the main purpose of the plan. Unquestionably the guarantee of certain minimum educational opportunities and the equalization of tax burdens are most desirable. It may be questioned, however, whether a plan such as has been proposed can be adopted by Missouri without producing undesirable effects of as serious a nature as the conditions that 1t is proposed to remedy. There are other recommendations of a financial nature. In order to encourage consolidation, the state would pay to any enlarged school district in which a new school building has been erected, in accordance with plans approved by the State Department of Education, the sum of $1,000 for each one-room rural school displaced by such a building. Also, it is held to be desirable that the state should pay a larger proportion of the salaries of the county superintendents, and legislation is recommended to provide that the state pay one half of such salaries, the total contribution by the state not to exceed $2.000. Analysis of the Proposed Plan The financial plan recommended appears open to the following objections: (1) it assumes that a local tax rate of 30.20 per $100 of assessed valuation is a satisfactory basis for the equalization program; (2) it assumes that a levy of $0.20 is equivalent to collections of $0.20 per $100 of assessed valuation; (3) the problem is not approached from the standpoint of the one-room districts, the elimination of which is perhaps the greatest need; (4) it 1s based in part upon the 250 THE FISCAL PROBLEM IN MISSOURI shifting of tax burdens; and (5) it represents an untried program of school finance in Missouri. The minimum program implies a high degree of uniformity in assessed valuations throughout the state. With reference to this phase of the problem, the Educational Survey Commission states: “It is the opinion of the Educational Survey Commission that the present assessment machinery can supply the State Superintendent of Public Schools with a fairly accurate statement of the taxable wealth in each county of the state and with a somewhat less accurate estimate of the wealth of each township.”? That such estimates are sufficiently accurate for the purpose of the plan of school finance seems to be largely in the nature of an assumption. The assessment and equalization procedure and the results obtained are hardly satisfactory, and this is especially true since it is planned to use a uniform rate on assessed valuation as a basis for the financial plan. "The school investigators apparently relied on the work of the State Tax Commission in making the statement quoted. The work of the State Tax Commission is to be commended, but the fact remains that it lacks both the staff and the funds necessary to carry on its work. For example, in a report of the State Survey Commission, we are informed that “The assessors are as a rule not very competent to assess any class of property and they know nothing about values of special classes, such as large structures, factories, merchants stocks, etc.”? The same report states: “The Tax Commission is supposed to have authority to supervise local assessing. As a matter of fact it is a small organization (three members appointed by the Governor, two field agents, a secretary and five clerks) which has a wide function exclusive of any actual supervision of individual assessments. Itis a physical impossibility for such an organization to supervise assessing. Aside from lack of staff to direct assessing operations, it lacks any authority to select or remove assessors. What it can do, it attempts, namely, to help to clarify the very complicated tax law and to make the assessors’ duties known.” The authority of the State Board ! A Preliminary Report of the Survey of the Public Schools of Missouri, p. 163. 2 The Taxation System of Missouri, p. 40. ! The Taxation System of Missouri, p. 40. PUBLIC SCHOOL FINANCE 251 of Equalization to overrule the equalized valuations of the Tax Commission injects another variable into the problem. It may be questioned, therefore, whether the present procedure could provide a satisfactory base for the school equalization program. Briefly, the plan assumes that a levy of $0.20 per $100 of assessed valuation for school purposes represents approximately the same rate on true value, regardless of where the school district is located. The other important factor which would have to be considered before a uniform base could be established is variation in assessment ratios. Unless it can be shown that property is uniformly assessed throughout the state, the minimum program can result only in equalizing on an unequalized base. It would be just as logical to base such a program upon a uniform assessment ratio and a variable tax rate as to base it upon a variable assessment ratio and a uniform tax rate. Property escaping taxation is another aspect of the problem, but for the sake of clarity the analysis may be confined to differences in assessment ratios. TasLE 80: ScrooL Ap Moneys IN RELATION TO ASSESSED Vavrvarions, ONe-TeacHER Districts aT $900 LEVEL! Computed by National Industrial Conference Board District 3 C 2 « rue Value of Taxable Property $100,000 100,000 100,000 100,000 100,000 100,000 100.000 ‘er Cent »f True falue at which roperty A gopoer Py Assessed Taluation ,70,000 65,000 50,000 55.000 on G5, +) 40,000 Tax Rate per $100 Assessed aluation Local Taxes 1.20 $140 -20 130 20 120 ) 110 : 100 | on 1). 20 dl Rate on True Value Total Aids? $0.14 $760 0.13 770 0.12 780 0.11 790 N10 800 2.09 | 810 nN MN 1 First step as proposed by the State Survey Commission. ®t State, county, and township aids. In order that the relationship between the financial program and differences in assessed valuations may be clearly understood, Table 80 was compiled. This table is based upon a tax rate for school purposes of $0.20 per $100 of assessed valuation, and the ratios of assessed valuation vary between $09, and 709%. The ratios are hypothetical, although they 252 THE FISCAL PROBLEM IN MISSOURI are probably within the limits of variation found in the state.! School districts, A to G, are assumed to have taxable property the true value of which is $100,000 in each case. The assessed valuations, of course, vary with the assessment ratios. By applying a uniform rate of $0.20 to the assessed valuations, the local taxes column is obtained. District A, in which property is assessed at 70%, would levy local taxes amounting to $140, while at the other extreme district G would levy local taxes of only $80. The tax rate on true value in District A would be $0.14 per $100, while in district G it would only be’$0.08 per $100. Deducting the local taxes from $900, the last column in the table is obtained. This column clearly indicates that the amount of aid guaranteed increases as the assessment ratio decreases. On the basis of this table, it seems that the financial plan would place a premium upon a low ratio of assessed valuation to true value, and it is difficult to see how any result other than a tendency towards low valuations could be expected, unless a strong state tax commission were in charge of the assessment and equalization procedure. The tendency toward low assessed valuations, which might result from the adoption of the school program, would present a serious problem to those in charge of property tax administration, even though the present system were greatly improved. As another approach to the problem, Table 81 was compiled, in order to ascertain if any relationship might exist between ratios of assessed valuation to sales value and the distribution of one-teacher districts according to the amount of aid guaranteed. Data for twenty counties, ten with high ratios and ten with low ratios, are included in the table. Counties in which large cities are located were not considered in compiling this table,” and the ratios, according to which the counties are grouped, are for rural property transfers only, the assumption being that in the counties chosen most of the one-teacher districts are rural schools. Of the districts receiving aid in the group I counties, for which the ratios are relatively very high, only 20.3%, would receive total state, county, and township aid of more than $600. On the other 1 See Table 51, p. 174. * St. Louis County was also excluded Because it is not a typical rural county. PUBLIC SCHOOL FINANCE 253 Tare 81: DistrisutioN oF One-TracHer Districts ACCORDING TO THE AMOUNT OF AID! RECEIVED AT THE $900 LeveL, SELECTED CouNTIES IN MISSOURI Source: State Survey Commission, A Preliminary Report of the Survey of the Public Schools of Missouri Computed by National Industrial Conference Board vatio of Assessed 7aluation to Sales Value Per Cent Number of Districts Receiving Aid of Total Num-| ber of Disricts Reelv- Aid Per Cent of Total Receiving Group Vlaxi- Minimum | mum Jlore | ‘han 3770 $701-' 3770 2601-! £441 8700 £600 $440 or Less More | $600 than ' or 3600 Less 256,20.3 79.7 289|22.1 71.9 368( 64.4 35.6 238/91.6 8.4 Group I, five counties Group II, five counties Group III, five counties Group IV, five counties | I) 56 3] 45 3 1 A Lz 114 gs re) 86 a-TE Groups I and II com- . bined : [X] Groups IIT and IV com- | bined 51 | 31 | 147 | Four groups combined | 75 | 31 11521 1 State, county, and township aids. 19° 92'219 2101 545]21.3178.7 143 | 165 | 101 | so] 60s}75.11249 162 1 257 | 320 1 260 11,151] 49.6 | 50.4 hand, of the districts receiving aid in the group IV counties, 91.69, would receive aid of more than $600. When the ten counties with high ratios are combined, it is found that 21.3%, of the districts would receive aid of more than $600, while in the ten counties with low ratios 75.19, of the districts would receive aid of more than $600. It is not claimed that the difference in the distribution of the districts is entirely the result of the differences in the ratios. It is, however, an important factor affecting the dis-‘ribution. Differences in wealth are also important, and this table is not intended to minimize such differences as exist in this respect. It is presented primarily to show that the counties with low rural ratios may obtain an advantage in the distribution of the state aid funds to which they are not entitled. This table should also serve the purpose of indicating that assessments throughout the state lack the degree of uniformity requisite for the adoption of the minimum program. Another phase of the problem relating to the uniform rate 254 THE FISCAL PROBLEM IN MISSOURI of $0.20 per $100 of assessed valuation is the difference between tax levies and tax collections. There is nothing in the minimum program to indicate that a school district will have to collect the amount of the taxes levied before it is entitled to aid. Consequently, the districts in which tax delinquency is most serious may see fit to depend very largely on state aid, since it may be possible to maintain a satisfactory school without collecting all of the local tax levy. It would seem that a financial program such as has been recommended would clearly require the collection of a certain proportion of the local levy, in order that each district might be required to finance at least a minimum proportion of its expenditures out of funds raised locally. The question may well be raised whether the transfer of a large part of the cost of the public schools to the state might not accentuate the delinquency problem in those districts in which the total aid would be relatively large as compared with the amount collected by the district. Probably the outstanding educational need in Missouri is for the elimination of the one-room rural schools, particularly in the districts in which the attendance is small and the cost per pupil, therefore, relatively high. This need is especially urgent in many of the poorer sections of the state. The financial plan offers an inducement for these districts to enter or form enlarged districts, since $1,000 would be paid on account of each one-room school displaced by a consolidated district. This part of the plan would not, however, become operative during the first four years, and after that it is wholly voluntary. It is perhaps too optimistic to expect that such districts will be formed in many sections of the state without considerable inducement, if at all. The oneroom district is in many instances firmly entrenched, and the residents of the community often are reluctant to accept a change for the better. A recent study published by the New York State Tax Commission contains a statement that might be applied to Missouri: “The most commonly advocated panacea is increased state aid. There can be no doubt that the recently enacted increase in state aid for schools was needed; yet there is doubt that it would have been needed if the education system PUBLIC SCHOOL FINANCE 255 had been organized along twentieth century lines. The bill passed by the 1929 legislature meets only half of the problem. There is grave danger in such a measure, as it may be expected that any unqualified increases in state aid will tend to further entrench the present district system. Such increases remove the incentive to consolidation. The localities should finance their own expenditures insofar as they are able to do so. Where, of two adjoining districts, one has an exceptionally high valuation and the other has an exceptionally low valuation, there is no necessity for shifting the school burdens of these districts to the state.”* In the light of this statement, it would seem that the one-room district in many sections of Missouri might become even more firmly entrenched if the recommended financial plan were adopted. The plan as recommended involves a considerable shifting of tax burdens, and the degree of shifting that would result is held to be desirable. The reduction of a district school rate from $0.65 to $0.20 per $100 of assessed valuation would involve a decrease of almost 709, while a reduction from $1.00 to $0.20 would involve a decrease of exactly 80%. It seems highly questionable whether the desired degree of equalization in tax burdens would be achieved by changes in local rates so radical as these. The financial plan is apparently based in part upon the theory that such a result would be accomplished regardless of whether the reduction in the school rate represents a comparatively small decrease in total raxes in one district and a much larger decrease in another. The question arises whether a radical reduction in local tax rates is expedient, or whether it might not be more desirable to increase the state’s contributions to the support of public schools over a considerable period of time, thereby making it possible to test such changes in tax burdens as may occur when the successive changes are made. As the subject of tax burdens is rather elusive and in many instances defies careful statistical analysis, a gradual change has much to commend it. At least a gradual change would make it possible to observe the effects, and it should also insure against an excessive shifting from one group to another. Finally, the proposed financial plan is an untried experi-1 Compton, R. T., Fiscal Problems of Rural Decline, Albany, N. Y., 1929, p. 182. 256 THE FISCAL PROBLEM IN MISSOURI ment in Missouri. The soundest development whether in educational or other fields is usually evolutionary in nature. Almost any change that can be said to be revolutionary in nature involves a large number of readjustments, and the results of the readjustments may not always be desirable. The adoption of the proposed plan would mean a complete change in the entire system of public school finance in Missouri, and the change would be made without an opportunity to obtain a check of desirable or undesirable results until some time after the plan went into effect. For example, the effect on local initiative in school matters could not be immediately observed. It is possible that the plan might do more harm than good to the rural school districts. Once adopted, it would be much more difficult to eliminate any objectionable features that might develop than to follow a definite plan providing for a gradual change, adjusting the plan as the necessity arises. An ApproacH To THE ProBLEM oF PusLic ScuooL FINANCE An approach to the problem of public school finance in Missouri should take into consideration at least six major factors: (1) the difference in the economic status of the several sections of the state; (2) the shift in population from the rural sections of the state; (3) the one-room rural district; (4) the value of local initiative in school affairs; (5) the difficulty of using assessed valuation as a basis for the equalization of educational opportunities; and (6) the desirability of approaching the problem from the standpoint of need. The marked difference in the economic status of the several sections of the state is an important factor in public school finance. There is a decided contrast between many of the counties in northern and northwestern Missouri and counties in the southern part of the state. The agricultural lands of the state vary greatly in productiveness, and the existing differences cause variations in the ability to finance public functions satisfactorily. In some sections of the state the public schools can hardly be financed entirely by local levies, PUBLIC SCHOOL FINANCE 257 and in others they can be adequately financed by local levies considerably below the average for the state. The population of Missouri is more than fifty per cent urban. During the past decade the population of the rural sections showed a decline. In most of the counties the decline was large enough to be very significant in connection with the present problem. On the other hand, the important urban centers and many towns and villages showed increases in population during the decade, which more than compensated for the decline in the rural sections. It is not possible to measure the extent of the decline during each year of the ren-year period. For the present purpose, it may be assumed that the decrease in rural population in the counties affected was evenly spread throughout the period, and that the population shift is likely to continue for at least some time. The significance of this rural decline in relation to the problem of public school finance is found in the fact that it is a direct causal factor influencing the per capita cost and in many instances the per pupil cost of maintaining the oneteacher schools in a large number of the rural districts. The per capita cost in such districts must increase unless the expenditures for school purposes decrease as the population declines. An increase in state apportionments could at the most merely reduce the proportion of the expenditures financed by local levies and could not reduce the absolute costs or per capita costs. The decline in rural population injects a variable into the problem of public school finance, which may mean decreased efficiency because of inability to maintain the previous length of term or increased per capita cost, if the previous level of expenditures is maintained, and increased per pupil cost in those districts in which the enrollment shows a decline as a result of the decline in population. The shift in population is probably the most fundamental aspect of the school problem. The detailed statistics of the fifteenth decennial census showing population by counties and smaller governmental divisions will be extremely valuable as an aid in solving the problem. The ten-year trend in population can be compared. with the trend in school enrollment, and such a comparison should indicate the approximate change in per capita and per pupil costs in the sections with declining rural population. 258 THE FISCAL PROBLEM IN MISSOURI Another factor in the school problem is the one-room rural district. Educators are generally agreed that the great majority of one-room schools are relatively inefficient, and that in many instances the educational opportunities afforded are extremely meager. In a consolidated district it is possible to adjust the size of the teaching staff to the number of pupils, while in the one-room districts no such adjustment is possible. If the teacher in a one-room school with 5 pupils in average daily attendance is paid $60 per month, the per pupil cost of instruction is $12.00 per month. If in another district there are 30 pupils in average daily attendance the per pupil cost of instruction is $2.00 per month. [t is generally recognized that local initiative is a valuable factor in school administration and finance. The consolidated schools in Missouri are a splendid example of the effectiveness of local initiative. There is little doubt that local pride in a consolidated school is greater when it is financed to a large extent by the community than it would be if the school were financed almost entirely by a non-local agency. Localinitiative should not be impaired; it should be stimulated. That is the principle which underlies the present state aid to consolidated districts in the state. The state supplements the funds raised by local initiative and helps to improve the educational opportunities that local initiative can afford. As a result, there is no danger that the state’s contributions will tend to reduce local initiative to the point where the community will come to rely on aid from outside sources without first attempting to solve its own problems. Assessed valuations in relation to public school finance have been dealt with fully in the previous discussion and need not be considered further in this connection. A method that uses assessed valuation as a basis for apportionment of state funds is deficient, since equity can be obtained only if the valuations are absolutely uniform and all property that is assessable is actually assessed. The extreme inequalities that result under the Missouri assessment procedure make the basis of assessed valuations a most unsatisfactory one for the apportionment of state grants in aid of public schools. Finally, the problem of public school finance in Missouri PUBLIC SCHOOL FINANCE 259 may well be approached from the standpoint of the needy districts. The question arises as to what constitutes a needy district. Information which will aid in answering this question is given in a recent school report. For the school year anded in 1929, there were 7,820 rural school districts that maintained schools, of which 41 districts had a term of less than four months; 165 districts, four and less than six months; and 802 districts, six and less than eight months.! Further, 4,730 districts had fewer than 20 pupils in average daily attendance. Of these districts, 1,037 had less than 10 pupils, and 1,714 had ten and not more than 14 pupils.? It was also reported that 17 districts had assessed valuation of less than $10,000; 59 districts had assessed valuation of $10,100 to $20,000; 160 districts had assessed valuation of $20,100 to $30,000; 340 districts had assessed valuation of $30,100 to $40,000; and 439 districts had assessed valuation of $40,100 to $50,000.32 In other words, 1,015 rural districts out of a total of 7,848 had assessed valuations of $50,000 or less. The available data concerning tax rates for school purposes are equally significant. These data, however, are for all districts, information concerning which is reported each year to the State Superintendent of Public Schools by the county clerks. For the school year ended in 1929, there were 11 districts that levied no tax; 267 districtslevied less than $0.20; 2,051 districts levied $0.20 to $0.40; 1,503 districts levied $0.40; 1,483 districts levied $0.40 to $0.65; and 3,531 districts levied $0.65 or more.’ When the six basic factors are considered jointly, the most obvious approach to the problem appears to be through a process of consolidation and redistricting. Any form of state aid that would further entrench the one-teacher district could hardly be regarded as economical, particularly in the sections of the state in which population has shown a rapid decline. In order that complete information might be available, the 1 Eightieth Report of the Public Schools of the State of Missouri, 1929, p. 322. ? Idem. 3 Idem, t Assessed valuations were reported for 7,848 rural school districts, as compared with 7,820 for which school term and attendance data were reported. Not all districts maintained schools. 5 Eightieth Report of the Public Schools of the State of Missouri, 1929, p. 266. 260 THE FISCAL PROBLEM IN MISSOURI superintendent of schools in each county could prepare a map of his county showing the present district lines and also possible enlarged districts. The county superintendent could also make available to the school authorities of the state such information as he may have concerning the attitude in the county towards consolidation and redistricting. With this information, both the county superintendents and the state school authorities would be in a position to further a redistricting and consolidation program. The most effective form of aid that the state can grant appears to be aid in furtherance of the consolidation movement. On’ the basis of the facts that have been presented, the logical solution would seem to be financial assistance to newly established consolidated districts and also certain assistance to the smaller districts when for various reasons consolidation is not feasible. The additional building aid to consolidated districts recommended by the State Survey Commission indicates a satisfactory approach to the problem, and it is possible that by increasing the state grants on account of buildings displaced and the maintenance apportionments to consolidated districts the consolidation program could be pushed forward rapidly. The only other form of additional aid that might be considered is aid to rural districts that could not be fitted into the consolidation program. Some of the present forms of state aid, as has been seen, have undesirable features. If the state adopted an effective central supervision of assessments, these objectionable features would be eliminated in part. It is not considered good business procedure to make a distribution of funds on a basis that is not subject to control by the authority disbursing the funds. This, however, is what Missouri has been doing in granting state aid that in any way depends on assessed valuation. If it were believed that the assessment procedure would not be greatly improved in the near future, assessed valuation should be eliminated as soon as possible as a basis for the distribution of state funds. State support of education on the basis of need probably represents the only effective approach to the problem of public school finance in Missouri. Examination of the present distributions indicates that they are not necessarily PUBLIC SCHOOL FINANCE 261 on such a basis, and in furthering the consolidation program it might be desirable to study the effects of the present systems of apportionment. If it should be found that any of them tended unduly to perpetuate undesirable features in the school system as a whole, it would appear advisable to discontinue them and to expend the funds in furthering the development of the consolidation program and in assisting those schools which cannot be brought under that program at the present time. CHAPTER IX FINANCING THE CAPITAL REQUIREMENTS OF THE STATE NHE capital requirements of state and local governments A are ordinarily financed by means of current revenue, through funds obtained by borrowing, or by a combination of the two methods. On the other hand, it is a recognized principle in public finance that current expenses for operation and maintenance purposes should not be met by borrowing, although the financing of a certain amount of expenditures through the sale of warrants issued in anticipation of tax receipts is not regarded unfavorably. In instances in which funds obtained from the sale of bonds have been used in meeting current expenses for operation and maintenance, the practice has received the condemnation of all those seriously interested in the proper administration of fiscal affairs. There is a sharp division of opinion in respect to the manner in which capital requirements should be financed. The pay-as-you-go school holds that it is always best to finance capital additions out of current revenues, and that it is only by following this policy without deviation that the highest degree of success in fiscal administration can be obtained. The other school sanctions a combination of borrowing and current revenues in the financing of capital additions. The advocates of the pay-as-you-go policy have at times been in the great majority in the United States. This was especially true of the administrators of state finances in the United States during the period following the Civil War. State borrowing in the United States was not of much importance prior to 1820, but in the succeeding period many eastern states borrowed considerable sums for internal improvements. In the development of the Middle West the same policy was followed. During this period credit was not 269 ,— FINANCING THE CAPITAL REQUIREMENTS 263 always available, and the banking system was not properly organized. The finances of certain states were not administered in a wholly satisfactory manner, and as a result public borrowing came into disrepute. This was particularly true after the close of the Civil War, when industry and regard for the future were at a low ebb. Immediately after the Civil War, Missouri, like many other states, put into effect a plan for liquidating the indebtedness of the state. The results accomplished under this plan have been described in a previous chapter. From the close of the Civil War period until approximately 1920, the incurring of indebtedness by the State of Missouri was narrowly circumscribed. Since 1920 Missouri has resorted largely to borrowing, for +he purpose of constructing a highway system comparable with that of other states. The pay-as-you-go principle is no longer applicable, for it has been recognized that to construct an adequate highway system out of current revenues would impose a tremendous tax burden and would also defer the attainment of the goal. There was thus a rather sudden transition from an almost rigorous adherence to the pay-asyou-go principle to a policy that has led to the financing of a large proportion of the capital needs of the state out of borrowed funds. It should be recalled, however, that the constitutional amendments that have been approved, other than those which authorized the issuance of soldiers’ bonus bonds, gave the state authority to borrow only for highway purposes. On the whole, the restrictions concerning indebtedness still in force are drastic, and any recommendation involving the financing of capital needs in connection with other governmental functions out of borrowed funds must be predicated on the understanding that a constitutional amendment would be necessary before bonds could be issued. EsTiMATED PRESENT NEEDS FOR CAPITAL ADDITIONS AND FXTRAORDINARY REPAIRS Table 82 shows the capital needs of the state as estimated by the recent State Survey Commission. A comprehensive survey was made of the various state institutions by the experts employed by the Commission, and it was found that 264 THE FISCAL PROBLEM IN MISSOURI there was a deplorable lack of suitable buildings and other facilities, particularly in the case of the penal and eleemosynary institutions. It was found also that a satisfactory building program for the institutions of higher education in the state had not been developed to an extent comparable with the progress made in other states with a capacity to support education approximately equal to that of Missouri. At many institutions there had been no important construction for many years, and in order that a well-rounded program might be developed for the future a large part of the expenditures recommended by the Commission was for building at ‘these institutions. TasLe 82: EstiMaTED REQUIREMENTS FOR CAPITAL QutLAYSs AND EXTRAORDINARY REPAIRS Source: Report of the State Survey Commission Educational institutions. . ..$16,178,000 State aid: Construction of public school buildings. ............. 2,100,000 Eleemosynary institutions. ........ 3eeik 175,000 Penal institutions. . ................. £512,000 Administrative office building. ......... 500,000 Governor’s mansion. . . 150,000 139.615.000 A recommendation of $2.1 million for construction of public school buildings was included in a proposal of the Commission, which if put into effect would require that the state grant additional building aid to certain school districts. It was contemplated that many smaller districts would be consolidated, when the second step toward carrying out the school program of the Commission was taken, and that there would be no need for any part of the $2.1 million until the fourth year after the proposed state aid program went into effect. The amount of $2.1 million might, therefore, be disregarded in considering the immediate needs for capital additions. The question may well be raised, however, whether the state should not consider the advisability of making immediate provision for additional building aid in the interest of carrying the consolidation program forward as rapidly as possible. , oo Another recommendation involves the expenditure of FINANCING THE CAPITAL REQUIREMENTS 265 $500,000 for an administrative office building. This expenditure appears justifiable, as the present state capitol cannot house all the boards, bureaus, and commissions of the state government, and the arrangement under which several departments are housed in rented quarters is inconvenient and expensive. A new governor’s mansion at Jefferson City also seems necessary. The one now in use was built in 1872, and engineers have given warning that the building is not safe for the holding of receptions and other large public gatherings. The expenditure of $150,000 for this purpose was recommended by the Commission. For the purpose of this discussion, the expenditures for capital purposes recommended by the State Survey Commission are accepted. Before discussing the problems of capital financing more fully it is desirable to consider briefly the expenditures of the state for capital purposes in recent years, with particular reference to the question whether the present capital needs of the state are in the nature of an accumulated deficiency or whether they are such as can conveniently be spread over a considerable period of time. AnaLysis oF Capital ExPENDITURES IN RECENT YEARS In order that the nature of the problem may be fully anderstood, Table 83 is presented. This table shows that -xpenditures for highways in recent years have predominated in the outlays of the state for capital purposes. In 1928 the total capital expenditures of the state government amounted to slightly more than $14.3 million, of which almost $14.1 million were for highways. Capital expenditures for all other purposes amounted to only $250,708, or $0.07 per capita, as compared with per capita expenditures of $3.92 for highways. In other words, for every dollar 2xpended for capital additions or improvements to buildings used for educational, penal, eleemosynary, general government, and other purposes, the state expended approximately $56.00 on account of capital outlays for highways. In 1927 the capital expenditures of the state for other than highway purposes amounted to slightly more than $1 million, the per capita expenditure being $0.28. The capital 266 THE FISCAL PROBLEM IN MISSOURI expenditures for highways in 1927, however, showed a total of about $18.6 million, and on a per capita basis the amount so expended was equivalent to $5.22. Stated differently, for every dollar of capital expenditures for all other purposes, $18.64 was expended for highway capital outlays. In 1925 out of per capita capital expenditures of $7.70 only $0.26 was attributable to purposes other than highways. In that year the state expended approximately $28.61 on account of outlays for highways for every $1 expended for all other purposes. Similar analysis might be made for 1924, but it would only lend additional support to the conclusion that highway expenditures have predominated in the capital outlays of the state, particularly since 1923, and that insufficient attention has been given to other requirements during the time when the highway program was being carried forward at a rapid rate. TaBLE 83: ToTaLANDPER CaPiTA STATE EXPENDITURES FOR CarrraL Purposes, Missouri, 1913, 1918, anp 1923-1928 Source: United States Bureau of the Census, Financial Statistics of States series Year a". 218 1923 1924 1925 1926 1927 “Ono Total Capital Fxpanditrivee , 3 nn Hizhwavs 11 730,179 9,144 198,275 <1,605 as8 a 69.613 All Other $473,745 1,216,189 2,135,822 815,607 923,738 949,097 1,018,570 250,708 Per Capita Ae 1923 1924 1925 1926 CJ Lon 5.35 7.70 6.47 r on $3.64 5.12 felt =n n.: 0.02 0.23 0.26 0.77 poe A 1 In 1913 per capita expenditures of the state government for capital purposes amounted to $0.14, while in 1918 they amounted to $0.36. In both years there were no capital outlays for highways, and these per capita figures are there- FINANCING THE CAPITAL REQUIREMENTS 267 fore comparable to the amounts shown in Table 83 for all other purposes for 1923 and later years. In 1928 the per capita capital expenditures for purposes other than highways were only one half as large as in 1913. In no year later than 1923 were the per capita capital expenditures of the state for purposes other than highways so large as in 1918. This comparison is particularly significant since 1918 was a year in which the capital outlays of many state governments were very low. At that time construction by governmental agencies other than for war purposes was at a low level. The data thus far analyzed indicate that there is ample reason why a large part of the capital needs of the state at the present time might be regarded as an accumulated deficiency. For the five-year period, 1924 through 1928, the outlays for purposes other than highways amounted to considerably less than $1 million per year, and the per capita average was only $0.22. The following statement in the report of the State Survey Commission indicates that a considerable part of the total expenditures recommended may well be regarded as an accumulated deficiency: “The amounts shown for ‘capital outlays’ and ‘extraordinary repairs’ cover only the barest present needs, a sufficient amount to take care of estimated increases in inmates and enrollment, and proper maintenance during a ten-year period.” The portion of the estimated expenditures that would be applied to maintenance of buildings rather than +0 construction is small as compared with the amounts for capital outlays. ProposeEDp Prax ror Financing Capital REQUIREMENTS Although the statement in the report of the State Survey Commission that has just been cited indicates that a considerable portion of the amount needed would be used in covering “the barest present needs” of the state, a later section of the report recommended that the financing be spread over a period of twelve years? since “there are no : Report of the State Survey Commission, 1929, p. 134. 2 The expenditure plan would not be operative until the taxes levied to support the plan had been in effect one year. 268 THE FISCAL PROBLEM IN MISSOURI present needs for a large building program.” It is difficult to see how the two statements can be reconciled, particularly in view of the information in regard to penal and eleemosynary institutions contained in the report of the Commission. It is believed that the several reports concerning penal and eleemosynary institutions are accurate. They reveal conditions of a kind that the state cannot afford to tolerate for any period of time. Reference to Table 82 indicates that more than 50% of the total recommended for capital outlays and extraordinary repairs is needed for penal and eleemosynary institutions. The exact amount as recommended is $20,687,000 out of a total of $39,615,000. It is not claimed that the entire amount of $20,687,000 represents an accumulated deficiency in capital outlays for these institutions. The evidence presented by the State Survey Commission indicates, however, that the deficiency is unquestionably large, and it is difficult to see how the state could justify deferring any part of the necessary construction and repairs for any length of time. Missouri has recognized its highway needs and has provided and is continuing to provide a splendid system of highways for the use of its more fortunate citizens. It is, however, proposed to spread the financing of the needs of the less fortunate who are in state institutions over a period of years, on the ground that a pay-as-yougo policy is desirable as well as less expensive. For humanitarian reasons 1t would seem that the state should endeavor to provide immediately for those needs which are in the nature of an accumulated deficiency, and to accomplish such a result without resort to borrowing would scarcely be possible. Although it is extremely difficult to forecast the needs for penal and eleemosynary institutions for a number of years, there is no doubt that the state will have to provide for financing such needs beyond those which represent an accumulated deficiency at the present time. To endeavor to provide for the additional needs that may develop as well as for the accumulated deficiency out of current revenue would present a most difficult problem. If such a policy were attempted, it seems more than likely that another 1 Report of the State Survey Commission, 1929, p. 168. FINANCING THE CAPITAL REQUIREMENTS 269 deficiency in capital requirements would arise while the existing one was being eliminated. In order that the financing of the present accumulated deficiency might not interfere with the financing of the future needs, it is believed that a bond issue should receive serious consideration as a means of financing this deficiency. Of the expenditures recommended by the State Survey Commission for capital outlays and extraordinary repairs $16,178,000 are for educational institutions. Of this amount at least a considerable portion would seem to represent an accumulated deficiency. There can be little doubt that the educational needs of the state are less imperative than those for penal and eleemosynary institutions. The lack of educational buildings cannot cause the physical hardships that may ensue from crowded and unsanitary conditions in a state prison. In view of this difference much might be said in favor of spreading the financing of the buildings for educational institutions over a period of years and confining the bond financing to the amount necessary for penal and eleemosynary institutions. Such a plan would be practicable if there were reason to believe that it would be put into effect and carried through without excessive delays. Past experience has indicated, however, that such a result would not be achieved. To avoid such delays the state, of course, might resort to borrowing in order to meet the needs of institutions. That, however, would involve a departure from the non-borrowing policy upon which a plan such as that recommended by the State Survey Commission is based. Moreover, if the state should endeavor to finance the deficiency in ‘educational buildings over a period of years, it is very likely that it again might fail to meet the building needs that at present cannot be foreseen. When these factors are considered, a bond issue as a means of eliminating the accumulated deficiency in educational buildings seems worthy of serious consideration. In addition to the capital expenditures for penal, eleemosynary, and educational institutions, the State Survey Commission, as has been seen, recommended a total of $2,750,-000 for a state office building, a new governor’s mansion, 270 THE FISCAL PROBLEM IN MISSOURI and public school buildings. Of this amount, the $2.1 million for public school buildings could be excluded from the program of capital financing if it were decided to provide for this form of aid, along with other forms of state aid to consolidated districts, out of current revenue. An important phase of the problem of capital financing grows out of the need for certain vital adjustments that seem necessary in the revenue system of the state! An attempt to finance a large amount of capital needs out of current revenues, before or during the time when important changes in the revenue system, particularly in the administrative machinery, are put into effect, might readily bring about an increase in rates of taxation out of proportion to the actual requirements. A greater degree of equity can be obtained if the capital needs are financed by means of a bond issue, since it will be possible to make the adjustments in the revenue system before a large part of the funds necessary for debt service are raised. The conclusion that a bond issue represents the most logical solution of the problem of financing capital expenditures that are in the nature of an accumulated deficiency has not been reached without considering all angles of the problem. The excessive use of credit is not commendable, and Missouri has been conservative in using its credit resources to provide capital facilities. A credit position has been maintained which would enable the state to borrow at favorable rates should the exigency arise. At the present time the only outstanding indebtedness of any consequence is that incurred for highways and the payment of the soldiers’ bonus, and ample provision has been made to service this indebtedness. If the bond issue plan of financing the present capital requirements were adopted, it would be desirable to develop a workable plan of financing the capital needs that may develop later. It is obviously difficult to determine in advance just what capital requirements will be in evidence a number of years hence. In formulating such a plan, not all factors could be taken into account, but it should go a 1 The adjustments in the revenue system referred to are considered in detail in Chapter XI. FINANCING THE CAPITAL REQUIREMENTS 271 long way toward preventing the state from having an accumulated deficiency of any size in the future. In outlining such a plan, it should be recognized that over a period of time, a certain per capita expenditure for penal, eleemosynary, and other institutions will be necessary. Although there will be variations in annual capital expenditures for these purposes, the development of such a plan should lessen the possibility of having to finance an excessive outlay in any one year or during a short period, since the plan should provide for sufficient income to meet the ordinary needs of the state for these purposes. It should not be assumed that a bond issue would necessarily involve a definite departure from the pay-as-yougo principle in financing capital needs other than for highways. On the contrary, the pay-as-you-go policy may be desirable in the long run, though it may not be applicable to a situation such as that under consideration. Also, regardless of whether the state desires to continue on a pay-as-you-go basis or to return to it as soon as the present bond financing is completed, it does not follow that the capital needs of the state can always be met satisfactorily in the future without resort to borrowing. Rapid changes of a social and economic nature often cause an increase in institutional needs that cannot be foreseen. When such is the case and it is recognized that the need is a real one, strict adherence to a non-borrowing policy may only mean a postponement of the capital outlays until conditions have become almost intolerable. The present instance is a good example of the inadequacies of financing capital improvements out of current revenues, to the exclusion of receipts from borrowing. It has been shown that on a per capita basis Missouri’s expenditures for institutional needs have been exceedingly low. The constitutional limitations make it impossible to borrow considerable sums for such needs, the assumption being that they will be cared for out of current revenues. The construction of a new governor’s mansion, which has been needed for many years, and of a needed administrative office building has also been deferred because of such limitations. There is a sharp contrast between the rapid development 272 THE FISCAL PROBLEM IN MISSOURI of the highway system, which has been financed very largely by means of bond issues, and the failure of the state to provide for its institutional requirements. Perhaps the difference is attributable to the fact that in the latter case financing by means of a bond issue has not been considered. It is easy to postpone the construction of institutional buildings on the ground that the revenues are inadequate, and strict adherence to a non-borrowing policy under such conditions must in time result in circumstances that will make it necessary to consider borrowing as a way out of the difficulty. While it is not always easy to obtain sufficient current revenues to meet capital needs, there can be no question that after a bond issue had been floated a state enjoying a credit position as excellent as that of Missouri would meet the necessary payments required for debt service. In other words, strict adherence to a pay-as-yougo policy may result in a considerable degree of procrastination, while payments for debt service may be provided without great difficulty. That such is the case in Missouri is indicated by the rather sharp contrast between capital provision for highways and that for penal and eleemosynary institutions. Revenue NeepeD UNDER Pran or Bonp Financing The discussion in this section is based on the assumption that Missouri will seriously consider the issuance of bonds in the amount necessary to finance the present deficiency in institutional and other capital needs. The computations which comprise Tables 84 and 85 are based upon the amount of $40 million.! These computations, however, are just as applicable to any other sum as they are to $40 million. For example, if it is decided to issue $20 million or $30 million of bonds, all that is necessary to obtain a picture of the amounts required is a proportionate reduction of the amounts shown in Tables 84 and 85. If bonds are issued, the period of maximum maturity will probably not be less than twenty years nor more than forty years, and Tables 84 and 85 have been compiled on the 1 See Appendix B. FINANCING THE CAPITAL REQUIREMENTS 273 TaBLe 84: ANNUAL AMOUNT oF Taxes REQUIRED FoR Dest Service oN $40 MirLLion oF TWENTY-YEAR 4149, Serial Bonps, IsSUED so THAT THE ANNUAL ReqQuireMENTS FoR DEBT SERVICE WILL REmain UntrorM THROUGHOUT THE PERIOD Computed by National Industrial Conference Board ‘ear Bonds Outstanding at Beginning of Year $40,000,000 38,724,954 37,392,530 36,000,149 34,545,111 33,024,596 31,435,658 29,775,216 18,040,054 26,226,810 24,331,970 12,351,862 20,282,651 18,120,325 15,860,695 13,499,380 11,031,806 8.453,192 5.758,539 1942 627 Bonds Redeemable at End of Year $1,275,046 332,424 1392.,381 "455,038 520,515 '588,938 660,442 735,162 813,244 894.840 1,980,108 1.069.211 1.162.326 1,259,630 2,361,315 1.467.574 1,578,614 2,694,653 2,815,912 1.942.627 Annual Equal Amount of Taxes Set Aside for Debt Service $3,075,046 3,075,046 3,075,046 1,075,046 075,046 075,046 075,046 ~075,046 1075,046 075,046 075,046 075,046 075,046 073,046 075,046 075,046 3,075.046 3,075,046 3,075,046 3.075.046 Bond Interest Due at End of Year $1,800,000 742,623 1,682,664 620,007 554,530 486,107 1,414,605 1,339,885 1.261.802 1,180,206 094,939 7005,834 912,719 815.415 713.731 507,472 196,431 380,394 259,134 132.418 Amount Available for Re~ demption of Bonds $1,275,046 1,332,423 1,392,382 1,455,039 1,520,516 £588,939 660,441 735.161 813.244 1894,840 980,107 1,069,212 2,162,327 2,259,631 1,361,315 2,467,574 1578,615 2,694,652 2.815.912 2942628 assumption that the number of years indicated will represent the extremes. In compiling these tables, no account has been taken of normal growth in the ability of the state to meet the expenditures required for debt service. A 44% interest rate has been assumed, although on the basis of recent experience the average rate at which such bonds can be sold would probably be nearer 434%. To the extent that the average rate would be less than 4149, the annual amounts required for interest would be reduced to some extent. On the other hand, if they are issued so that on the average they bear a coupon rate of 415%, the bonds would doubtless sell at a premium, thus making a larger amount available at the outset. Refinements of this sort need not be considered in detail, but it should also be noted that Tables 84 and 85 are based on the assumption that the entire amount 274 THE FISCAL PROBLEM IN MISSOURI TasLE 85: AnNvuaL AmouNT oF Taxes REQUIRED FOR Deer Service oN $40 MirrioN oF ForTy-YEAR 4149, SeriaL Bonps, ISSUED so THAT THE AN-NNUAL REQUIREMENTS FOR DEBT SERVICE WILL Remain UnirorMm THROUGHOUT THE PERIOD Computed by National Industrial Conference Board (ear g J AN 0 Bonds Outstanding at Beginning of Year $40,000,000 39,626,274 39,235,730 38,827,612 38,401,129 37,955,454 37,489,723 37,003,035 36,494,446 35,962,970 35,407,578 34,827,193 34,220,691 33,586,896 32,924,580 32,232,460 31,509,195 30,753,383 29,963,559 29,138,193 28,275,686 27,374,366 26,432,486 25,448,222 24,419,666 23,344,825 22,221,616 21,047,863 19,821,291 18,539,523 17,200,076 15,800,353 14,337,643 12,809,111 11,211,795 9,542,600 7.798.291 $975,488 4,070,659 2.080.113 Schedule of Bonds Redeemable at End of Year $373,726 390,544 108.118 426,483 445,675 465.731 186,688 508,589 531,476 555,392 580,385 606,502 633.795 662,316 692,120 723,265 755.812 780,824 825.366 862,507 901,320 941,880 Lu 1,074,841 1,123,209 173,753 bh (330,447 1,399,723 [462,710 1,528,532 1,597,316 1,669,195 1,744,309 1,822,803 1,904,829 1,990,546 2080113 Annual Yue Amount of Taxe Set Aside for Debt Service $2,173,726 2.173.726 2,173,726 2,173,726 2,173,726 2.173.726 2,173,726 2.173.726 2173.726 2173.726 L173.726 2173726 2173.76 173,726 173.726 “173.726 173,726 173,726 173.726 173.726 173.726 173.726 1.173.726 173.726 173.726 173.726 173,726 173.726 173.726 173.726 173.726 173.726 V173.726 173.726 173,726 2,173,726 2.173.726 2.173.726 2.173.726 2173.726 Bond Interest Due at End of Year 1,800,030 1,783,182 “765,608 747,243 728,051 707,995 687,038 1,665,137 1,642,250 1,618,334 1,593,341 1,567,224 1,539,931 1,311,410 1,481,606 U450,461 i,417,914 17383,902 2 272,406 231,846 17189,462 145,170 1098.85 050,517 999,973 947,154 891,958 834.279 774,003 711,016 645,194 576,410 504,531 429,417 350,923 268.897 183,180 93.605 Amount Avail able for Redemption of Bonds 373,726 390,544 408,118 426,483 445,675 465.731 486,688 508,589 531,476 555.392 580,385 606,502 633,795 662.316 692,120 723,265 755.812 789,824 825,366 862.507 901,320 941,880 984,264 1,028,556 074,841 ,123,209 {,173.753 226,572 281,768 (,339,447 1,399,723 462,710 1528,532 1597.316 669,195 744,309 1,822,803 1,904,829 1,990,546 2080121 would be issued at one time. The issuance of the entire amount at one time might not be desirable, particularly if FINANCING THE CAPITAL REQUIREMENTS 275 there should be difficulties in obtaining satisfactory contracts for the construction work involved. Table 84 is an answer to a hypothetical question that may be stated as follows: What annual sum will Missouri have to raise by means of taxation in order to pay the interest on and to retire $40 million of bonds issued on the same date, bearing interest at an annual rate of 424% on the average, and maturing serially so that the total required in any year for interest payments and redemption will be uniform with all other years during the twenty-year period over which the bonds are spread? The annual sum required would be $3,075,046. Obviously, the amount required for interest would tend to decline, and the amount needed for redemption would remain constant, if the retirements were evenly spread over a period of years. In Table 84, however, the decrease in interest payments and the increase in the amount available for redemption offset each other, with the result that the total available for debt service remains uniform for each year throughout the period. The result is that the amount of bonds which can be retired at the outset is relatively small, and, therefore, the total required for debt service on an annual basis is greater than the average that would be required if the retirements are spread evenly over a period of years, the interest being regarded as a separate factor. Table 85 has been constructed on the assumption that forty years would represent the maximum maturity for any part of the issue. Otherwise, the assumptions are identical with those underlying Table 84. Obviously the annual amount required for debt service is much less in this case, although it is more than one half as much because of the interest factor. On the forty-year basis, the annual amount needed is found to be $2,173,726. Manifestly, it would not be desirable to issue odd amounts of bonds as shown in Tables 84 and 85. These tables were compiled on the theory that the annual amount needed could best be shown on the basis of a constant requirement for debt service. The amounts shown in the second columns in each table could easily be adjusted to some conveniently rounded number so that the bonds would be issued in multiples of 276 THE FISCAL PROBLEM IN MISSOURI £50,000 or $100,000, without destroying the uniformity provided in the table to any great extent. Also, as a practical matter, it might be desirable to adjust the interest rate according to maturity; and, if this were done, the interest payments would not decline by the exact amounts as indicated. A uniform interest rate of 415%, or some lower rate, could be used on the theory that the shorter maturities would no doubt sell at a discount and that the longer maturities would sell at a premium that would at least compensate for the discount. Under no circumstances should it be assumed that $40 million obtained from the sale of bonds is comparable to $40 million collected in equal installments over a period of years. Let us assume that $4 million will be collected each year for ten years, the first installment coming due one year hence. The present value of the ten amounts of $4 million each assuming interest compounded at the end of each year at a rate of 424%, is $31,650,873. It is the latter amount that is comparable with $40 million collectible in ten installments as indicated. Using the same assumptions as to interest and the time the first installment came due, there would have to be collected a total of $50,551,528 in ten annual payments in order that a present value of $40 million might be obtained. The differences between these amounts are significant in that they should prevent anyone from assuming that $40 million received from the sale of bonds is comparable to the same amount spread over a period of time in equal annual installments. CHAPTER X PROBLEMS OF TAX BURDEN ROBLEMS of tax shifting and final incidence are P among the most difficult found in taxation, as well as in economic theory. Although a tax is paid by an individual or a corporation, it does not follow that the burden rests on the payer. It is generally agreed that certain kinds of taxes cannot be shifted except under very unusual conditions, that other taxes are always shifted, and that taxes which do not fall in either of these categories are shiftable in varying degrees. Much of the theory concerning the shifting and final incidence of taxation is speculative or hypothetical in nature, and the research investigator must, in many cases, approach specific problems by means of hypothetical examples. In other cases, it is possible to obtain data bearing on the question, and such conclusions may be reached as the data seem to warrant. In the present study it is proposed to consider (1) the burden on tangible and intangible property, (2) the burden of the Missouri income tax with specific reference to the arban nature of the tax, (3) the tax burden on corporations, (4) the burden on state and national banks, and (5) the burden of motor vehicle taxation. In some instances it will be found that the available information is hardly sufficient to justify any conclusions. When it is not possible to analyze a problem thoroughly, its nature will be pointed out, and the information necessary for its solution will be indicated. Tue BurDEN ON TANGIBLE AND INTANGIBLE PROPERTY It is frequently contended that tangible property, particuarly real estate, bears a disproportionate share of the Missouri state and local tax burden, and that intangible property is paying much less than its share. For purposes of llustration, let us assume that A owns real estate in an Yi7 278 THE FISCAL PROBLEM IN MISSOURI urban community having a true value of $10,000 and that B owns securities of the same value, which are taxable at general property tax rates and the income from which is taxable under the Missouri general income tax. Let us further assume that both A and B receive a net return of 69, on their investments before taxes, or $600 per annum, and that the state and local tax rate on property is $2.50 per $100 of assessed valuation. Whether the owner of the real estate will be overtaxed as compared with the owner of the securities, assuming that both will be reached for the general property tax and the income tax, will depend primarily on the percentage of true value at which the two kinds of property are assessed for the general property tax. As has been seen, the average ratio for real estate is approximately 55%, while such intangibles as are reported are assessed at a much larger percentage of true value, in many cases at 100%. If the taxable securities are assessed at full value, $250 will be levied against them on account of the general property tax, reducing the net income to $350. On the other hand, if the real estate is assessed at $5,500, the general property tax will amount to $137.50, leaving a net income of $462.50 before the payment of the income tax. It is clear that under the assumed conditions the owner of the securities would be overtaxed as compared with the owner of the real estate. This example, while purely hypothetical, serves to show that, if intangibles are reached for the general property tax, the tax burden will be greater than that on urban real estate. It serves further to indicate the excessive burden of the general property tax on securities that yield a rate of return as high as 6%, which is the apparent reason why by far the larger part of intangible property is not reached for the general property tax. Although the intangibles that are reached for general property taxation in Missouri are no doubt overtaxed as compared with tangible property in general, it does not follow that intangibles as a group are in fact overtaxed as compared with real estate. On the contrary, if the larger part of intangible property, as appears to be the case, is reached only by the income tax, if at all, while taxable tangible forms of property are taxed at general property tax PROBLEMS OF TAX BURDEN 279 rates and the income from such property is taxed at the income tax rate, it follows that the tangible property is overtaxed as compared with the intangibles escaping general property taxation. The problem of the respective burdens on tangible and intangible property is not so much a question of tax burdens as a question of property escaping taxation. Such discrepancies in burdens as exist are largely the result of the widespread failure of assessors to assess intangible forms of property. As will be set forth later, a practical method of dealing with this problem is to tax intangible forms of property by means of an income tax and to confine the general property tax to real estate and other tangible forms of property. At the present time, the burden on taxed intangible property is no doubt much greater on the average than is the burden on real estate, and the greatest discrepancy exists between those intangibles which are assessed for the general property tax and those which escape assessment. Certainly the difference between no property taxation and taxation at full value in the case of intangibles is much greater than any discrepancy between real estate taxes that may be attributed to differences in assessment ratios. By abandoning general property taxation of intangibles, it should at least be possible to place the taxation of such property on a uniform basis, which evidently cannot be accomplished under present methods. It might be contended that, if such a policy were adopted, the discrepancy between the taxes on tangible property and those on intangible property would be so great as to constitute a serious problem. It must be kept in mind, however, that property taxes, particularly those on real estate, are capitalized at least in part, and that in progressive urban communities the general property tax on rented property is shifted in large part to the tenants. Also, it is not possible to bring about absolute uniformity in the taxation of two kinds of property so different in nature as real estate and intangibles. The abandonment of general property taxation of intangibles would at least seem to represent a practical approach to the problem, in that it would tend to eliminate the wide discrepancy between the intangibles that are assessed and those that are not assessed. 280 THE FISCAL PROBLEM IN MISSOURI Tue BurpEN oF THE Missourt Income Tax It is generally accepted that an income tax imposed by a governmental unit as large as the United States is not usually shifted, that is, cannot be passed on by the taxpayer through changes in prices. This does not necessarily hold true of a state income tax. Industry in Missouri competes with industry in other states, and this applies also to persons who are engaged in the production of the same or similar products. It must be recognized, however, that established industries and individual workers lack a high degree of mobility, and this lack of mobility is an important factor in the shifting of the income tax. The question of the shifting of the income tax, or any specific tax, furthermore, cannot be considered by itself. It is the total state and local tax burden that is significant, not the burden of any specific tax, and always various other factors are present. If an industry decides to remove from a state, 1t 1s usually because a careful analysis of all the factors indicates a balance in favor of moving. Even though the margin in favor of moving is equivalent to the difference in taxes in the two states, and the difference in taxes is due entirely to the fact that one state levies an income tax and the other does not, it does not necessarily follow that the difference in tax burden will be the decisive factor in determining the question of moving. “The only generalization possible 1s that all other factors being equal, the location of industry may turn on the question of tax burden.” The tax burden is no doubt a more influential factor in determining the location of a new enterprise than in causing an industry to move from one state to another. In reachinga decision as to location, the corporation income tax is significant in that it forms a component part of the total tax burden. If in two states all other factors, including all taxes other than the income tax, are equal, the location of a new enterprise may depend on the presence or the absence of a corporation income tax. t National Industrial Conference Board. State Income Taxes, 1930, Vol. II, p. 163. PROBLEMS OF TAX BURDEN 281 Is the Missouri Income Tax an Urban Tax? [t is frequently stated that, when a state adopts an income tax, the tax burden of the urban population is increased and that of the agricultural communities is reduced. In a recent Conference Board study, the following reasons for this conclusion were offered: “(1) the per capita current income of farmers is considerably lower than that of the non-farm population; (2) a substantial portion of the farmers’ income is received in non-cash items which are consumed by the farmers’ families and, therefore, never reported as taxable income; (3) farming is carried on in small units as compared to trade and manufacturing, producing more numerous but smaller incomes; as a result, a portion is not taxed because of the personal exemptions allowed, and the remainder falls in the lower brackets of the progressive rate schedules.’ The reference to progressive rate schedules is not applicable to Missouri at the present time. Nevertheless the Missouri income tax is very largely an urban tax. The income tax levies or collections in urban communities of Missouri cannot be segregated from the county totals. However, Tables 86 and 87 represent a satisfactory approach to the question of the urban and rural contributions to the total receipts from the tax. In Table 86, only the personal income tax levies in 1928 are considered, while in Table 87 both the personal and corporation taxes are included. According to the data in Table 86, the personal income taxes levied in St. Louis Cityin 1928 amounted to $1,134,754, or 47.29, of the total for the state. The number of incomes assessed in that city was 61,877, or 45.6%, of the state total, and the average levy was $18.34. Since only one person out of about thirteen of the population was assessed, the per capita levy was only $1.40. St. Louis County showed a smaller ratio of incomes assessed to population, but the average levy of $25.54 and the per capita levy of $1.72 were considerably higher than for St. Louis City. St. Louis City and St. Louis County accounted for 60.6%, of the personal income taxes levied and 55.09 of the total number of pery Nashonsd Industrial Conference Board, State Income Taxes, 1930, Vol. II, J. I. 282 THE FISCAL PROBLEM IN MISSOURI TasLE 86: PersonAL Income Taxes LEviep! in Missouri, 1928 Source: Biennial Report of the State Auditor, 1927-1928 Computed by National Industrial Conference Board County Number of Incomes Net Income Taxes Levied Per Per Per Cent | Cent | Cent | Aver-y Per |of Totaljof Total|of Total age Tax| Capita | Nym- | Taxes | State fLevied ! Levy | per of | Levied Popula-Yanramaclin Statel tion Groun 1 Buchanan. . .. Greene. ...... Jackson. ..... St. Louis. .... St. Louis City. Total, group! 2,308, 35,094 12,6 61.97 oT, 485 47 2,996, 61,028,9% 32,277.61: 137475 40¢ $64,854.65), 4.0 65 | 5.2 29,966.05] 17.94 1.29 | L.70 610,289.50] 17.201 1.32 25.89 322,776.19] S50 152 032 1.134.754.06] 18.34" 1.40 45.64 +42 640.45] 18.58] 1.34! 85.87 Yul z./ 120, 2.2 25.27] 12.4 12.42 5.3 47.16] 22.7 89.89] 45.3 “4,36! 12948 Group 17 Boone....... wu 1,440,5. Cape Grardeas] 50% 603,857 Cole.........I 106% 1,298,527 jasper........| 1,719, 3,486,232 Marion.......| 1,23¢€ 1,266,764 Pettis. ....... 85” 10180 Randolph..... 63¢ &¢ St. Charles... . 68° 61: Total, group 111 7,772" 10,417,296 14,405.0.. 6,038.57 12,985.27 34,862.32 12,667.64 10,150 07 Pn 6.15% 2.1 12,03 12.19 20.28 9,48 0 / 019 0 44 0.47 1.78 LQ ATE Oe, wu n.37( 0.25 0. 0.79| 0.54] 0.8 1.26] 1.45 2.1 0.99 0.53 0.9 r43l 0.42 1.0 0.29! 0.7 0.25" 0.7 x J Im 104 172.96" 15. i 0.36 570 432 80 Group IIT Total, all other = counties. . . | 40 osm) 139,095.99] 12.16] 0.08 | 8.44) 5.78| 46.7 Grand total. .|135,577]240,590,940(2,405,909.40| 17.75] 0.67 1100.00(100.00] 100.0 1 Exclusive of penalties and delinquent taxes. TT sonal incomes assessed in the state, although they represented only 28%, of the population of the state. When the data for Jackson County are added to those for St. Louis County and St. Louis City, it is found that these three jurisdictions accounted for approximately 869, of the total personal income taxes levied and 80.9% of the total number of incomes assessed in the state. The group I counties, which include Buchanan and Greene Counties, in addition to the three that have been considered, accounted for 89.99, of the total personal income taxes levied and 85.897, of the total number of incomes assessed in the state, PROBLEMS OF TAX BURDEN 283 although they represented only 45.3%, of the population of the state. The per capita levy was $1.34, an amount exactly twice as large as the per capita levy for the state. One out of every thirteen to fourteen persons was assessed for the personal income tax in the group I counties. Group II comprises eight counties in which cities of moderate size are located. The counties in this group accounted for 4.3%, of the total personal income taxes levied and 5.79% of the incomes assessed in the state, and the average levy was $13.40. However, group II accounted for 8% of the population of the state, and only one out of every thirty-six to thirty-seven of the population of these counties was assessed for the tax. The per capita levy for group II was $0.36. Group III, or all other counties, accounted for 46.7%, of the population, 5.8% of the personal income taxes levied, and 8.49, of the total number of incomes assessed in the state. Only 11,440 personal incomes were assessed in this group. For the state as a whole, personal income taxes were levied on 135,577 incomes. The average tax levied was $17.75, and the per capita levy was $0.67. Dividing the estimated population of the state by the number of incomes assessed, it is found that one out of every twenty-six to twenty-seven’ persons was assessed for the income tax. Table 87 shows both the personal and corporation income tax data by counties and sections of the state for 1928. The per capita corporation levies are not shown separately, but they can be obtained with a considerable degree of accuracy by deducting the per capita personal levies from the per capita total levies. This table indicates extreme variations in personal, corporation, and total income tax levies. For example, in Dallas County there were no income tax levies of any kind, and in Hickory County the total income tax levies amounted to $30.09, a negligible amount whether considered absolutely or on a per capita basis. In four counties, Carter, Ozark, Taney, and Camden, the per capita levy was only $0.01. i In calculations of this kind, it is not possible to eliminate the incomes of de--eased persons and incomes from trusts that are assessed for the personal income ray TaBLe 87: DistriButioN oF Income Tax Levies! By CouNTiES AND SECTIONS OF THE STATE, 1928 Source: Biennial Report of the State Auditor, 1927-1928 Computed by National Industrial Conference Board Jounty Andrew. .... Atchison. . ... 3uchanan...... Caldwell... .. Clay....... Clinton. ..... Daviess. . . ... DeKalb. ....... ........ GENLIY. ..ovevennnnnnn. Harrison, . ............ Holts sons sors rvmpvnsss Nodaway.............. Platte. ............... Ray. ......... Worth. .... Total Individuals Corporations Total peony Taxes Number Number T of Net Incomes Taxes Per of Net Incomes axes Amount Per Incomes Levied Capita {Incomes Levied Capita Northwestern Countian $108,163 | $1,081.62 322112" 3221.12 5,485,465 54,854.65 35,609 356.09 658,880 | 5,588.80 1744841 1744.84 10,083 400.83 "380" 17780 “aan “9 1€ 44 2 EN 7 0.7 N.€ 0.05 0.26 1.20 Woo 1.04 02 ‘OR 10 24297 33,975 1,261,432 23,768 "61,793 57,306 044 16 955 55,192 22 €78 1748 “54 2: 75 » 51,939 03 Gy 2,126 1.99 4m | 298000) $362.97 339.75 12,614.32 237.68 1617.93 172.06 CAA $1,144.60 3,560.87 $7,468.97 593.77 2,206.73 1,317.90 499.27 "4" 2 r Zi ny Ih n.e 0.¢ 0.47 0.27 0.C 2.0 ).15 20 ).] 2 xX J.1¢ 0.03 AS 74 e921 13.224 17.257 9.040 277 na4 oo 8 - LI pI 172.57 90.403 £5 219. 21.26 - 2 90.91 er ,701.62 193.83 Northern Connt:-_ Adair. . vein ees carroll... Chariton. . ov crvnnnnnanernns SIUNAY. cv vein Livingston. ......... o. Macon. ............ Mercer. ........ ..-dutham. ........... Randolph...... .. Schuyler... . Sullivan. . . Total...... Z 7 3 €Y )] 106 §7 405 197,475 283,296 201,589 | 130,488 en 3 14,700 14,992. 38 4541 ~03 <7 2 Feo clo Lo 10 ald 0.021 13,563 24,608.61 0.111 237| 552,720" 7 1,153.26 $4.05 974.75 ,832.96 1,015.89 304.08 ).] 1.0 ).1a ALY 0.1 px )" : re to, 2 31,734 2255" 2,460,861 1 Northeastern Countie: VE 540.08 | 0.0% £2 323.82 0.03 449 624.49 0.05 266764] 12,667.64 0.3¢ "7268 733.60 0. | 68 117.65 0.01 1,377 213.77" 0.02 24.909 569.09 | 0.05 1,579,025 1879n2¢’ nr Clark. ............ GIO. sass pp vv vn we i RE Marion. ............. Monroe. .........-Ralls........... Scotland... Shelby. .... Total. ............. Exclusive of penalties and delinquent taxes. 1: 45 13,346 22,230 294,425 46,307 180,37€ ? 45 10 41,717 123 616.377 3 1,30 i“ T 1,654 wo096 017 173279 ).14 7241.05 0.07 1124.67 2.13 ,217.50 0.14 1504.82 0.17 1297.55 20° 107 0 e104, £217 030 1 1.1C 564.59 | 0.08 129 63 Li 0.03 YETL 30,135.81 | 0.14 175.16 715.24 0.07 133.49 457.31 0.05 222.30 846.79 0.07 L9482F 561189) 047 463.0: 1196.70 0.08 ,803.7¢ 1921.44, 0.12 16 218.39" 0.07 417.17 986.26 0.08 6,163.77) 21954021 0.20 I'aBLE 87: DistrisuTioN oF INcomE Tax Levies! BY COUNTIES AND SECTIONS OF THE State, 1928 (continued) Source: Biennial Report of the State Auditor, 1927-1928 Computed bv National Industrial Conference Board Jouncty Audrain. ........... franklin. ...... [efferson....... wincoln ............ Montgomery........ ITY es eee Pike.............oo lL. St. Francois................ St. Genevieve. ............. . Warren. .................. i. Washington. ................ ...... Total, above counties. ............. 36 Charles. ooviinummiciisssinisnss St. Louis County. .................... St. Louis City. ....................... Total, three counties. ............... Total, all eastern counties. Individuals Corporations | Total Tso Taxes Number Number| of Net Incomes Taxes Per of Net Incomes Taxes Amount Per Incomes Levied Capita {Incomes Levied Capita Eastern Counties TIGRE] $4,559.60 354.8281 3,548.28 312367 3123.67 87.402 874.02 32,761 827.61 39,248 392.48 N2173, 2121.73 359/326 | 3593.26 137049] 1370.49 45,585 455.85 34647 346.42 262154 16213.4¢ 613.45 6,134.35 NTE 027760 1370 1247540 Ac nes “red fn -r 0.1% 0.11 J.06 c.0€ *03 1 $448,331 103,050 14,817 55,035 39,134 10.352 99 30 L047 a3 5:43 483.3: {030.50 448.17 550.35 191.34 03.52 "33.30 -70,93 113.52 +10.08 57 $9,042.97 4,578.78 3,571.84 424.37 1218.95 796.0 3,105.03 9,064.15 1,684.01 875.93 623.9 "986.0 43.8 * A 0.7 D1. 2.10 J.09 J.0¢ J.1/ 0.9" 1 x 0° 2 8 2. 2,650 682 2,640 1.877 5°199 IT [s he 14 Was ! y NA Sz irk '65,.42.21 is ,-06 9003710 190,037.10 £3,701.7° 191143721 919809701 919.809.70 | 2.409.687 ~~ Ar —AR AACE an p90 rr setheastern Countie em ——— rr ree. Zollinger. .. o.oo Biatder. Livan rcisnimm nes vam Cape Girardeau... .......... Dunklin,.......... I IPO pmgn vv uno num nn Madison. ........... Mississippi... oc v es New Madrid. ........... .. .. PEmMISCOt. «vein ee eens BOE. save veer aa Stoddard. ........ . Wayne. .... Total... ng 0 ¢ £30 in id 1,3, 1.16 £ng.57 1,526.31 , 581.17 367.49 Freg] OL 1.18 2.19 0.04 0.06 0.04 0.04 9.0 ol 17 a Loo 0d. r, 23,/29 237991 0.07 1,439 | 520911 | 19,209.41 | 0.07 Carter. . o.oo Douglas. .......... Jowell. ............ 10710) APU dzark. o.oo Reynolds. ........... RAPLET ass 2 son ww 0 5 0 0 miei Rannon. .....ooovvevnnnn. TEXAS. «vv vvereiinannnnns Nebster. i. Nright. Total. ... ea eimn nf EE, 280 t Exclusive of penalties and delinquent taxes. Southern Counties eq 0.01 17.99. 471.53 240.09 102.20 142.19 £7,150 24,009 1 0,220] 14,219 rr" Cr 17.240 320,713] 2/225 lL 122.40 | 0.01 3,207.13 | 0.02 1J,t it 40,893 394,080 > 59,207 | 12 13,021 10 25,124 7 11,434 9 19,355 21 107,861 15 36,850 ¢ 44.948 16,092 1921 1,079,758" L.'d. 108.9 1,940.80 592.07 130.21 251.24 114.34 193.0% 1,078.61 368.5" 449.44 160.92 10,797.52 4.069 40.6. [138 171.38 31,181 811.81 2,880 28.80 10,182 101.82 5.724 57.24 5.776 97.76 25.535 255.35 26000 260.09 17,450 174.5 94 | 199,944, . 1,999.44 201.14 5,770.09 0. 1,979.37 0... 2118.38 0.06 711.38 0.07 618.73 0.06 $80.25 0.04 174 )C2 AC 74010 2332.17 0.09 999.84 0.04 398.211 0.03 30.006.92 | 0.11 83.5. Gul 189.37 0.01 2,283.34 0.11 268.89 1.02 02.20 0.01 24401 0.03 377.88 0.03 216.44 0.02 502 66 0.03 635.35 0.04 74.90 | 0.02 5,206.57 | 0.04 T'aBLE 87: DistriBUTION OF INCOME Tax LEviEs! BY COUNTIES AND SECTIONS OF THE State, 1928 (continued) Source: Biennial Report of the State Auditor, 1927-1928 Computed bv National Industrial Conference Board Individuale Corporations Total Yeaing Tarts Number Number| - | TC T: P T P a " | Net Incomes Levies | Capit a F a] Net Incomes Lees | Amount | Capita Jarry. .... 3arton...... Christian. . .... RE . Jade. ..... ERR ed . 3reene........ EE fasper.......... RA . Lawrence. .......c.oviunnnn... .. McDonald. ......................... Newton. ......... CREE EEE wa Stone. .......... Cee Faney........ cee Total Senthwestern Carns $108,430] $1,084.30 109.551 1,095.51 2/635 276.35 14 043 169.43 2,00 1% 19,966.05 Tar hi 14,862.32 1,637.83 5€"08 17 fe 1c « “al n 18 ,308 719 | 116 31 r 3 ~ tril TA4e ME or 0, 0 0.01 0.3¢ nN A rn i "67 Ce ‘a1 1: C132 ¢ 16,972 288 1,492,089 206 | 1.981.019 xn 66,384 1” 29.617 2 93,497! 17,574 : an ri 4 NF ng 32 1c 72 14,920.89 19,810.19 663.84 296.17 934.97 178.74 *.38 plysosd44 1.06 ',522.57 0.10 427.67 J.0C 339.15 2.03 44,886.94 0.56 34,672.51 0.74 2,301.67 0.10 865.25 0.06 2,671.63 | 0.10 373.40 | 0.03 128.49 1 ani Am EAL MA Bates. ...... 1 Lor Lowi CASS. iin : 148 237,426 27.42 211, cedar. ...... ie... ” - } 10,691 175.91 1.01 ONY user ats BEER ERE 2355 MEN as 233 507,234 JC 234 0.22 IOhnson. .....covuivmeucssvsans . 269 372,875 Is VF Lafayette. .......... eee 351 378,869 36 1° St. Clair, ...... eee ee 32 42,064 20.64 WC ernon................ ciiieee.. 269 457,076 4,570.76 ) : Total, above counties. ............. 1,411" 2,102,414! 21,024.14 0.12] 217] 2,621,399 26,213.99 723213] 0.28 Jackson.......covevvenvinenennnen...t 35094 | e255) 610,289.50 | 1.38 { 2,054 | 30,419,762 304,197.62 | 914,487.12 | 2.07 Total, all western counties............ 36,505] 63,131,364] 631,313.64 | 1.03 [2,271 | 33,041,161] 330,411.61] 961,725.25 | 1.57 Central Countie 4.4 175s 28. 2,985.%, 3,141.98 429.31 denton .....e0nen.n BOONE. vee ve renorennnnnns . ABWRY. <b pene w ee vv mime «<x oe ATARI sss pwn i Eg pw sway mie I Cooper. ..... SE Crawford. . . . A ER 5 Jallas...... cml 23 Dent. swpenasirs RI 41.435 sasconade. .. . een 44,609 Jickory. ... REESE 8 ES 241 doward. . . IIT 163,954 Laclede. . .. veil 55,136 Maries. . . . ... 10,279 Miller. ......... .. Cee 70,630 Moniteau. ............. -. 33,512 Morgan. ........covunnn : "5,648 DSAZE. viens 72,789 CAIUS x vs smnvases sve :.015,002 ShElPS. .unainaninsnn rane . 273,663 POE. ou vvriire FERRE EERE EE EES nares 51,151 Pulaski............... — 46,682 Saline. ........ -..... asia ws 727,867 12. . Tote, cowinn coon . 4,786 5,981,446 59,814.46 | 0.16 479! 1,899,645 rand total. «nnn 135.577 1740500.940] 2.405 909.40 | 0.67 7.293 | 136.443,893 . Exclusive of penalties and delinquent taxes. 22 7 [,440,.04 175.502 2,839 1,298,527 314,198 42,931 Va 2.47 2.09 22632 16-3 in 3 31 164,021 48,239 18/846 7,283 1,964 2768 13,6051 19,000 1,889 17,436 (0,746 £'033 £0 11 226.32 2,6¢" 43 1,250.63 53.31 3,640.21 ,482.39 288.46 466.3% 17,103.47 3,011.65 81.70 6,625.48 1,624.37 917 77 C04 0.56 1.15 0.01 0.56 0.24 1.06 487.18 865.73 30.09 .. 1175.59 0.16 $41.36 0.05 18168 0.02 1,080.66 1.07 342.58 1. 296.81 0.6 L012.67 0.08 £41113 0.3¢ 3 4E Ole 74094 0.04 Tl 9.06 0,661.98 0.35 18,996.45 Taga] 0.21 364 438.93 3,770,348.33 | 1.06 0.04 0.15 290 THE FISCAL PROBLEM IN MISSOURI For the eleven southern counties as a group, the personal income taxes levied amounted to only $3,207, and the corporation levies were only $1,999. On a per capita basis, the personal income taxes levied were $0.02, and the total income taxes levied amounted to only $0.04. The southeastern counties as a group ranked next to last in per capita personal and total levies, the respective amounts being $0.07 and $0.11. Similar comparisons for other sections of the state might be made, but they would add little to the value of the interpretation. The analysis of the data presented indicates the following conclusions: (1) that the per capita income taxes levied are larger in those counties in which there is a considerable urban population; (2) that the poorer counties of the state contribute almost negligible amounts to the total receipts from the tax; (3) that the total corporation income taxes are paid very largely by the comparatively few counties of the state in which the larger cities of the state are located; and (4) that, considering all counties in the state, the Missouri income tax is very largely an urban tax. TrE Tax BurDEN oN CORPORATIONS Various studies have been published from time to time in which attempts have been made to compare the taxes paid by corporations in a number of states or to analyze the taxes paid by corporations engaged in different lines of enterprise in a single state. The data most frequently used are the total federal, state, and local taxes paid, taxes paid other than the federal income’ tax, and the net income before payment of taxes other than the federal income tax, as well as the net income after payment of all taxes. The data used are obtained from the federal income tax returns. In a recent study, for example, it was pointed out that on the basis of these data the federal, state, and local tax burden on Missouri corporations for the year 1926 was equivalent to 38% of the net profits remaining after the payment of taxes, and that of a group of eight comparable states only two. Kansas and Illinois. showed a smaller ratio than Mis-! Foreign corporations are assessed in the assessing jurisdiction in which their principal place of business or agency within the state is located. PROBLEMS OF TAX BURDEN 291 souri! It was indicated also that the ratio for Missouri was approximately the same as that for all corporations in the United States. If the total taxes paid by Missouri corpora-~ tions amounted to $0.38 for every $1.00 of net income remaining after the payment of taxes, it follows that taxes were equivalent to approximately 27.5%, of net income before the payment of any taxes” It was pointed out that the returns used were those from Missouri, and in the discussion that follows emphasis will be placed upon this limitation, as well as other limitations. There are sound objections to the use of the combined data from the federal income tax returns for the purpose of interstate comparisons of corporation taxes paid or corporation tax burdens. These objections seem to be so significant that it is doubtful that any conclusion reached on the basis of a comparative analysis of the combined data for all corporations or all corporations in a given class can be given much weight. In the first place, the returns from Missouri include property taxes and other taxes paid on account of branches and business done in other states. The data are particularly unreliable for the purpose of indicating corporation tax burdens in Missouri, as compared with other states, for the reason that both St. Louis and Kansas City are located on the borders of the state and a number of corporations have extensive properties in other states. The result is that the state and local taxes which are used for Missouri in making comparisons of this kind include large amounts of property taxes paid not only in adjoining states but in states a considerable distance from Missouri. If it could be shown that the taxes paid by corporations reporting from other states on account of properties owned and business done in Missouri offset the taxes paid in other states by corporations reporting from Missouri, the validity of the data would be greatly enhanced. Any assumption of this kind, however, is largely conjectural. Another objection to the use of the data as indicated relates to the assumption that the ratio as computed from the combined income and tax data is typical. It is true that the 1 The Taxation System of Missouri, 1929, p. 31. That is. $0.38 divided by $0.38 plus $1.00, or $1.38, equals 27.5%. 292 THE FISCAL PROBLEM IN MISSOURI ratio as computed is in a sense a weighted average, that is, it indicates the relationship between total taxes and total profits of all corporations. It does not follow, however, that the average is typical. Each year a number of corporations report net losses rather than net profits, and the larger the number and size of such concerns, the less representative the ratio becomes. For example, since certain Missouri corporations reported net losses, it follows that a large number of corporations must have had profits much greater than $1.00 for every $0.38 paid for taxes. Even though each corporation reporting from Missouri had a net profit, the ratios for individual corporations would doubtless vary widely. It might be found that there was no concentration at or very near to the average computed from the combined data. Another possibility is that by means of an analysis of individual corporation returns it could be shown that there was a definite modal group comprising corporations with ratios of not less than 259, nor more than 309, and that the average of 389, was accounted for by a comparatively few corporations with ratios much higher than the average. If the latter should be the case, the mode would be much more significant than the average. A third reason for the limited conclusions that can be drawn from such data is the fact that variations within a state are no doubt usually much larger, even in the same class of industry, than the variations among the averages for the several states. In many states property tax assessments are decidedly variable, and, since property taxes ordinarily account for the largest part of state and local taxes paid by corporations, the reasons for the above statement should immediately be apparent. In view of the importance of the property tax item and the variation in assessment ratios, it would seem to be unwise to attach any significance to interstate comparisons that are based upon data in the form of averages without first ascertaining the extent of the variation within a particular state. It would, however, be permissible to make comparisons between cities in several states, if comparable plants could be considered and all of the necessary information obtained. As yet no wholly satisfactory approach to the problem of PROBLEMS OF TAX BURDEN 293 interstate comparisons of corporation tax burdens has been developed. The general property tax constitutes the largest part of the combined state and local tax burden on manufacturing plants, with the probable exception of very profitable corporations in states with fairly high income tax rates. For the purpose of determining the general property tax burden, the only satisfactory approach would seem to be an engineering appraisal of a large number of manufacturing plants in the states which it is desired to compare and a comparison of the valuations obtained with the assessed valuations and tax rates. Investigation of this kind would no doubt show that the variation in assessments for the general property tax in most states would be considerably greater than the variations among state averages. Even though an investigation of this kind should be made, it does not follow that absolute comparisons could be made. In the first place, an appraisal by a competent staff of engineers is subject to some margin of error. Furthermore, the results obtained would be for manufacturing plants in general and not for those engaged in manufacturing a particular kind of product. Before definite conclusions could be reached, the comparisons of the general property tax burden would have to be made on the basis of industries that are in more or less direct competition with each other. For example, a comparison of the general property tax burden on all corporations in St. Louis might indicate a smaller burden on the average than inacityinan adjoiningstate. Such a conclusion would not be very significant unless it could be shown that manufacturing corporations in the other city were engaged in the production of commodities comparable to those which are produced in St. Louis. On the other hand, if the burden on corporations manufacturing a specific product in St. Louis were found to be larger than on a plant manufacturing the same product in a city in another state. such a conclusion would be of real value. In determining the total tax burden on corporations it would be necessary to include other forms of taxes. These taxes could be easily determined for a corporation with a given capital set-up and a given net income from operations. Usually, however, the general property tax would comprise 294 THE FISCAL PROBLEM IN MISSOURI an important variable, and, unless a comparison of property tax burdens! were included, it would not be possible even to approach the question of total tax burdens. Sales value as an indicator of the value of manufacturing properties is practically useless, as has been pointed out previously, and, unless facilities were available for determining the general property tax rates on true value in the manner indicated, any conclusions that might be derived would have little value. This analysis represents little more than an approach to the problem of comparative tax burdens on manufacturing corporations. It is not known that any analysis of the problem in the manner indicated has ever been made, and, until data resulting from an analysis of property tax burdens on manufacturing plants producing competitive products are available, the problem of comparative tax burdens on manufacturing corporations in the several states must in large part remain unsolved. The same applies to corporations in other lines than manufacturing, although in certain lines the value of the tangible property assessable would be proportionately much less than for manufacturing corporations. Although there are no data which can be used to compare the income of corporations derived in Missouri and total state and local taxes on corporations in Missouri, there is one aspect of taxes paid by corporations that deserves mention. For the calendar year 1928, the federal corporation income.taxes collected in Missouri amounted to a little less than $34 million. To what extent this figure might be altered, if allowance were made for taxes on income of corporations reporting from Missouri derived from other states and taxes paid by corporations in other states on income derived from within Missouri, it is difficult to say. It would seem safe to conclude, however, that Missouri and other corporations contributed between $30 million and $40 million to the Federal Government on account of taxes on income derived within Missouri. If the variable factors could be eliminated and it were found that the federal corporation ! General property taxes paid in relation to income would represent only one approach to the problem. Since income varies both as to time and place, the rates on true value would have to be determined before absolute comparisons could be made. PROBLEMS OF TAX BURDEN 295 income tax attributable to Missouri was $34 million, it would follow that the federal tax on corporation income would be comparable to the total taxes collected by the State of Missouri in 1928, which amounted to only slightly more than $34 million. Although an exact computation is not possible, the large volume of federal corporation income tax payments affords a reason for accepting the conclusion that ““the business interests of Missouri, excluding farms, pay half or more of the total taxes.” Another factor that tends to support the conclusion arrived at is that large business enterprises are taxed for state and local purposes at higher rates on assessed valuation than is property on the average. The higher rate is the result of the urban location of industrial and mercantile concerns and the fact that urban general property tax rates are much higher on the average than they are in rural sections. In a recent year the combined state and local tax rate in St. Louis City was $2.69 per $100 of assessed valuation and $3.09 in Kansas City. It is rates such as these that must be regarded as representative for industry, and not an average rate on property for the state. Tue BurDEN oN STATE AND NATIONAL BANKS National banks are instrumentalities of the Federal Government, and it follows that they may be taxed for state and local purposes only to the extent that is permissible under the federal statutes. According to the federal statutes, national banks may be taxed in any one of four ways: (1) by a tax on the shares, (2) by a tax on net income, (3) by a tax according to or measured by net income, and (4) by including dividends on bank stock in the taxable income of the owner or holder. In addition to the taxation of national banks in any one of the four ways indicated, real estate may be taxed for state and local purposes. Missouri taxes national bank stock under the general property tax, and it follows then that this form of tax operates to the exclusion of any other form of tax except the general property tax on real estate. 1 The Taxation System of Missouri, 1929, p. 30. 296 THE FISCAL PROBLEM IN MISSOURI State banks pay a corporation franchise tax and are subject to the income tax in addition to the general property taxes on real estate and bank stock. The general property tax on bank stock is assessed to the shareholder, but in practice the tax is paid by the bank, and for all practical purposes the distinction between the shareholder and the bank need not be considered in analyzing the burden of bank taxation. Since banks chartered by the state are subject to two taxes that the national banks are not required to pay, it follows that they are in an unfavorable competitive position. In other words, their tax burden at the present time is excessive as compared with national banks. The difference in the total taxes that are assessed against national banks and state banks may be illustrated by assuming the case of a banking institution with a combined capital and surplus of $1 million, deposits of $10 million, loans and investments of $10.6 million, and a bank building the true value and book value of which is $400,000. The last two items are assets, and the first two comprise liabilities in the bank statement. In practice there are other asset and liability items, such as reserves and contingency accounts. The items stated, however, are sufficient for the purpose of illustration. If itbeassumed further that the bank buildingand shares are taxed at a rate equivalent to $1.50 per $100 of true or book value and that the net income of the bank is $100,000, or 10% of the combined capital and surplus, the general property tax on the bank will then amount to $6,000, and the property tax on the shares will amount to $9,000, on the basis of 100%, assessment of the capital and surplus less the value of the real estate. If the bank is a national bank, no other taxes are assessed, and the total state and local taxes paid amount to $15,000. On the other hand, if the bank is a state bank, it is assessed $1,000 for the income tax, in addition to the property taxes. Also, as a state bank it has to pay a corporation franchise tax of $500, on the basis of the assumed bank statement. An unusual provision in the franchise tax statute provides that for the purpose of this tax bank deposits shall be regarded as left for safe-keeping. In other words, $10 million would not PROBLEMS OF TAX BURDEN 297 be included in the computation of the franchise tax, and the tax would be assessed on $1 million at the rate of $0.50 per $1,000. The corporation franchise tax would, therefore, amount to $500. Since the state bank is required to pay $1,500 more than the $15,000 that the national bank must pay, it follows that under the assumed conditions the state bank would pay taxes 10%, greater than those paid by the national bank. It is obvious that a 109 difference in taxes results in a competitive disadvantage. The extra taxes paid by a state bank cannot ordinarily be shifted to the customers of the bank in the form of higher interest rates charged on loans or lower interest rates paid on deposits, since in most cases state banks are in direct competition with national banks. Other things being equal, the extra taxes would result in smaller dividends or smaller total capital liabilities. Tue Burpex oF Moror VericLE TaxaTION Motor vehicle taxation in Missouri is lighter than in many other states. The rates for the license tax are moderate, and the two cent tax on gasoline is low compared with the average for the United States. Motor vehicles are assessable as personal property, but many of them escape assessment each year, and the valuations of those which are assessed are ordinarily small as compared with their value to the owners. In addition to the state motor vehicle license and gasoline taxes and the general property tax for state and local purposes, a number of cities levy a tax on gasoline and collect motor vehicle license taxes in accordance with authority granted by the state. As a result, the burden of motor vehicle taxation varies throughout the state. Table 88 shows the average license tax per motor vehicle collected in 1929 in each state in the United States. The basic data used in making these computations were the total registrations, including trucks, and the license tax receipts, including the amounts that revert to the local governments. The receipts from licenses levied and collected by local governments are not included. According to this table, the average license tax per motor vehicle in Missouri amounted Tare 88: License Tax anp Gasorine Tax per Motor VEHICLE, BY STATES, CALENDAR YEAR, 1929 Source: America’s Highways, July. 1930 Rank ir Descending Order United States weighted average. , . Average License ax per Motor Vehicle 513.18 Average vez 3asoline [ax per Motor Vehicle 216 60 Total of License and Gasoline Taxes $29 87 License Tax Gasoline Tax License and Gasoline Taxes Maine. .........c0vuves. New Hampshire. ........ Vermont. ............... Massachusetts. .......... Rhode Island. ........... Connecticut, ... ........ New York. ............. New Jersey. ............ Pennsylvania... ,..... Ohio. ..... Cen Indiana. ................ {llinois......ovvvvvvnnn.. Michigan. .............. Wisconsin, Sham Minnesota. . . . Co fowa........ .......... Missouri. .....ovvvunnnn. North Dakota. .......... South Dakota... ........ Nebraska. ... Cee Kansas. .. ce. Cee Delaware. .............. Maryland. .............. Viginin. .. on mmmmmivessss West Virginia. .......... North Carolina. ......... South Carolina. ......... Georgia. .ovvvvveivnnann. Florida. . . . Ce Kentucky. . Gavia Tennessee. . Cen Alabama............... Mississippi ’ Arkansas. cen Louisiana. . eae Oklahoma. . Cee Texas. . : Montana. ......o.ovvun... Idaho................... Wyoming. .............. Colorado. ............ . New Mexico. ......... ., Arizona. ... Utah........ . Nevada. .... . Washington. ........... Oregon. .....covvenenn.. California. .......... ! Tax in effect only two thirds of year, but figure is adjusted to full-vear basis 2 Tax in effect five months onlv. 3 PROBLEMS OF TAX BURDEN 299 to $12.81, as compared with a weighted average of $13.18 for the United States. Missouri ranked twenty-seventh among the states on this basis. The average motor vehicle license tax exceeded $20.00 in only three states, New Hampshire, Vermont, and Connecticut. The average state gasoline tax per motor vehicle in Missouri amounted to $10.15, as compared with a weighted average of $16.69" for the United States. Missouri ranked forty-fifth on this basis. Only North Dakota, Wisconsin, and Illinois ranked below Missouri. The low ranking for Illinois is accounted for by the fact that gasoline tax was in effect in that state for only the last four months of the year. Florida ranked first on this basis with an average of $35.35. When the averages for the license tax and the gasoline tax are combined, it is found that Missouri ranked fortyfourth for the year 1929, with an average for the two taxes of $22.96, as compared with a weighted average of $29.87 for the United States. In other words, the average state license and gasoline tax for Missouri was only about 77% as great as the average for the United States. If general property taxes per motor vehicle assessed in Missouri could be ascertained, it would doubtless be found that the average tax was not so large as in a number of other states that assess motor vehicles for the general property tax. The average for Missouri would be further reduced, if the basis used were total registrations, since a considerable number of motor vehicles escape assessment and some are registered after the date as of which the assessment is made. The principal inequality in Missouri motor vehicle taxation results from the failure of many local assessors to reach all of the cars in their jurisdictions. Other variables are the city Jicense and gasoline taxes and the wide differences in assessments among counties. These differences are significant in the case of privately owned passenger automobiles, since the tax cannot be shifted. 1 The basis for computation includes receipts that revert to the local governments, but does not include taxes levied and collected by local governments. CHAPTER XI SOURCES OF ADDITIONAL REVENUE LTHOUGH there is little doubt that the State of Missouri will have to raise additional revenue, there may be considerable differences in opinion concerning the amount that will be needed in the near future. Such differ ences depend largely on a number of variables that enter into any estimate that might be made. Before considering the sources from which additional revenues might be obtained, it is desirable to analyze briefly the variables on the expenditure side and the revenue situation with which Missouri is confronted at the present time. VariaBLE Factors iv StaTE EXPENDITURES Any estimate of the additional expenditures that Missouri will be obliged to incur during the next few years depends largely on the position taken concerning, (1) the financing of capital requirements by means of a bond issue as compared with current revenues, (2) the amount of additional maintenance appropriations toinstitutions of higher learning, including teachers’ colleges, (3) additional state aid for publicschool purposes, and (4) additional state support for conservation of the public health and the care and treatment of the mentally defective and feebleminded. The recent State Survey Commission recommended additional state expenditures of approximately $193 million? for a ten-year period or an average of approximately $19.3 million per year. This estimate was based on the financing of all capital outlays and extraordinary repairs out of current revenues, increased expenditures on account of appropriations to educational institutions for current expenses, increased state aid to public schools of $100.6 million for current expenses in accordance with the minimum program, and in-! Report of the State Survey Commission, 1929, p. 134, 200 SOURCES OF ADDITIONAL REVENUE 301 creased appropriations for current expenses of the State Board of Health and the penal and eleemosynary institutions. An important element in the estimate was that funds would be available which would make it possible for the state to assume the full support of the eleemosynary institutions. Any estimate of expenditures five years in the future is of necessity conjectural, and no attempt will be made in this study to estimate the expenditures of Missouri for the several functions for a period of years. Any estimate that might be made for a period of more than two years would be of little value. Accordingly, the discussion that follows will, with a few exceptions, be confined to a biennial period. Also, a minimum estimate will be used, for the reason that the revenue system of the state is in need of certain basic changes, and, until such time as these changes are effected, it is probably not desirable to augment expenditures to a greater extent than is absolutely necessary. It would seem that the additional current revenues which the state will need in each of the next few years can be limited to less than $4 million, exclusive of possible increase in motor vehicle taxation. For example, if capital outlays and extraordinary repairs are financed by means of a bond issue and if additional aid for public school purposes is confined to an appropriation for the purpose of stimulating the consolidation of one-room districts and for the support of such districts as cannot be brought under a consolidation program, the additional annual expenditures for capital outlays and public school purposes can be kept at a minimum. If it should be decided to finance capital outlays, including extraordinary repairs by means of a bond issue, the additional expenditures out of current revenues would be for debt service rather than for the functions on account of which the outlays were made. In arriving at the minimum estimate that follows, it is assumed (1) that the state will finance its present capital requirements by means of a bond issue, (2) that the program of school finance previously outlined is desirable, (3) that the question of full state support of eleemosynary institutions will not be considered for the next few years, and (4) that the increased appropriations for the 302 THE FISCAL PROBLEM IN MISSOURI State Board of Health and educational institutions recommended by the State Survey Commission will be granted. It is generally recognized that the full state support of eleemosynary institutions is desirable. The proper care of the persons confined in such institutions is expensive, and the charge now made to the counties may have certain undesirable results, since under the present system patients may be kept in local institutions that do not have the proper facilities for their care. The state might consider the gradual elimination of the charge now made to the counties, but the revenue difficulties that are considered later seem to make it desirable to defer such a program for at least several years. The chief problem that concerns the state at the present time is how to obtain a minimum of additional revenue during the period when its tax system is undergoing several vital adjustments. The attempt to raise a large amount of additional revenue during such a period might increase greatly the difficulties of effecting the changes. If it should be decided to limit the capital outlays to be financed by a bond issue to $23 million,! and that amount of bonds bearing a coupon rate of 425%, were issued so that the annual payments for debt service would be uniform throughout a period of twenty years, the annual requirement for debt service would be approximately $1,768,150. On the other hand, if the maximum were forty years, the annual requirement for debt service would be slightly more than $1.25 million. A total estimate of $3,829,900° for increased expenditures in the first year can be obtained by assuming that the twenty-year bond issue plan is feasible and that the bond financing at the outset can be limited to $23 million, and by including the following expenditures: $600,000 for state aid to public schools on the basis indicated, $944,400%for educational institutions, $417,350° for the State Board of Health, and $100.000 for the State Tax Commission. v _ 1The State Survey Commission recommended expenditures for capital outlays and extraordinary repairs amounting to $22,740,600 for the first two biennial periods. 2 If $40 million of bonds should be issued, the annual requirement would be $3,075,046. 3 If $40 million of bonds should be issued, this figure would become $5,136,796. One half of the State Survey Commission figure for the first biennium. 5 One half of the State Survey Commission figure for the first biennium. SOURCES OF ADDITIONAL REVENUE 303 The suggested amount of $600,000 for additional aid to public schools may be larger than would be necessary for the first year. If would seem that the most effective results could be obtained by following the plan outlined in Chapter VIII. According to this plan, each county superintendent would prepare a map of his county showing the possibilities of consolidation, and state aid funds would be available to such consolidated districts as would be formed with the approval of the county superintendent and the state school authorities. The suggested plan would provide also for additional state aid to poor districts that could not be fitted into a consolidation program and the expenditures of which could not be reduced by redistricting. It is difficult to estimate what amount might be required, since it would take some time for the county superintendents to prepare a map showing the most logical consolidations that would be possible. It would seem, however, that the state would need approximately the amount indicated in the first year in which increased revenue would be available. A careful investigation of the present bases of distributing state funds could also be made during that period, and doubtless increased amounts could later be made available to consolidated districts by restricting or eliminating certain forms of state aid that appeared to be unnecessary or undesirable. ADJUSTMENTS IN THE REVENUE SYSTEM Possible changes in the administration of the several taxes that comprise the Missouri tax system have been discussed in a previous chapter. In this section, an attempt will be made to analyze a problem the several aspects of which seem almost irreconcilable. The problem involves principally the restrictions that the Federal Government has placed upon the taxation of national banks and the fact that it is desirable to obtain adequate taxes from banking institutions without discriminating against those chartered by the state. It has been pointed out previously that the attempt to assess intangible forms of property other than bank stock for the general property tax has not been successful, and that probably the most desirable change that can be made is the 304 THE FISCAL PROBLEM IN MISSOURI elimination of intangible forms of property from the general property tax base. An analysis of the problem indicates further that the attempt to tax intangibles as property no doubt has an adverse effect upon the receipts from the personal income tax. If the owner of intangibles reports the income from them in filing his state income tax return, there is some likelihood that they may be uncovered for general property taxation. It is true that the income tax law provides that it is unlawful for any person or officer to use the information concerning income in any manner whatever in connection with or for the purpose of assessing the general property tax.! If a taxpayer reports to the assessor an income of $1,000 from intangibles, the same assessor is presumably required to assess them for the general property tax in accordance with the statutes governing that tax, provided that the intangibles are taxable. On the other hand, the provision in the income tax statute forces him in effect to have no knowledge concerning the existence of the taxable intangibles, although he has definite information concerning the income from them which is reported for the income tax. The assessor cannot carry out one law without disregarding the other. The statement has been made that state income taxes, in so far as they apply to persons, “have served everywhere as the occasion for the exemption of intangibles from taxation as property.”? This statement is not applicable to Missouri, for intangibles have been subject to taxation at general property tax rates ever since the state income tax law went into effect. There 1s little doubt, however, that the exemption should have been granted at the time the income tax law became effective. The assessed value of money, notes, bonds, etc., has been decreasing rapidly, and, if the personal property tax on intangibles is not soon abandoned, Missouri may be faced with a classification under the general property tax to which little or no valuation can be assigned. The principal reason for continuing the taxation of intangibles under the general property tax has no doubt been the fact that it is difficult to obtain adequate revenues from a tax 1R. S. 1919, Section 13135, as amended by Session Laws 1925, pp. 370 f. 2 Lutz, H. L., Public Finance, New York, 1930, p. 425. SOURCES OF ADDITIONAL REVENUE 305 on national banks, unless they are taxed on the value of the shares. If other intangibles are not taxed as property, the taxation of the stock of national banks at general property tax rates is no longer possible. The federal statute that provides for the taxation of national banks contains a provision to the effect that a tax on shares cannot be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens coming into competition with the business of national banks! In a decision rendered in 1921 the Supreme Court of the United States held that moneyed capital meant any interest-bearing investment made by an individual.? A proviso enacted in 1923 seemed to liberalize the federal statute, but as the result of a decision handed down by the Supreme Court of the United States, the statute including the proviso is interpreted in such a way that interest-bearing investments in the hands of individuals are assumed to be in competition with national bank stock. Consequently, Missouri can continue the taxation of national bank stock as property only so long as interest-bearing investments are taxable as property. It is doubtful that the taxation of national bank stock in Missouri could be continued if a national bank should go to the trouble of contesting the tax on the ground that many other intangibles are not taxed. In order to contest the tax, however, it would be necessary to produce evidence concerning intangibles that are not taxed, and the principal reason for not contesting the legality of the tax is no doubt found in the fact that the only information concerning intangibles that are not taxed which a bank might have would involve those owned by its clients. The authority previously quoted has stated: “The original method of taxing the shares as the personal property of the shareholders may be used by those states which are still so backward as to retain the system of taxing all intangibles at high rates as property.”® This statement is obviously applicable to Missouri. The shares of state banks could not be 1R. S. U. S., Section 5219. 2 Merchants National Bank of Richmond v. City of Richmond, 256 U. 8. 635. 8 First National Bank v. Anderson, 269 U. 8, 341, 350. ! Lutz, H. L., Public Finance, p. 488. 91 306 THE FISCAL PROBLEM IN MISSOURI taxed at general property tax rates and the tax on the shares of national banks discontinued, since that would result in a very decided competitive disadvantage to the state banks. The desire to retain the state and local revenues derived from the share method of taxing banks has led to the continuance of the method of taxing other intangibles at general property tax rates in the face of declining valuations. If it be granted that it is more difficult to reach the income from intangibles for the income tax so long as they are subject to the general property tax, the loss of revenue from the property tax on bank stock is probably the only way out of the difhculty. If the federal statute governing the taxation of national banks is revised in such a manner that the states will be able to tax state banks and national banks uniformly by a method that will yield adequate revenue commensurate with the taxpaying ability of the banks without recourse to a system of taxation like the one now in effect in Missouri, it will then be possible for state and local income from bank taxes to be augmented. It is hoped that the Federal Government will soon recognize the difficulties with which it has surrounded the taxation of all banks as the result of the restrictions on the taxation of national banks. So long as the federal statutes remain unchanged, Missouri must choose between the present system and one of the other three methods by which national banks may be taxed. The loss of revenue resulting from the discontinuance of the taxation of bank stock at general property tax rates can be justified on the ground that the elimination of money, notes, bonds, etc., from the general property tax base is most desirable. if the best results are to be obtained. In analyzing the possible sources of additional revenue, one is, therefore, faced with the fact that the elimination of money, notes, bonds, etc., from the general property tax base is a practical necessity and that there will be a resulting loss of revenue not only to the state government but to the local governments as well. It therefore becomes necessary to consider possible arrangements that would compensate the local governments for the loss of revenue. SOURCES OF ADDITIONAL REVENUE 307 Sources oF ApprtioNAlL RevENUE TuaT May Br CoNSIDERED In this section it is proposed to consider the principal sources from which the state may derive the additional revenues needed to carry out a minimum expenditure program during the next few years. No attempt will be made to estimate the revenues that the state might obtain over a considerable period by means of increased rates for certain taxes or the imposition of new taxes. If such estimates were attempted, there would naturally be a large margin of error. For the purpose of the following analysis, it 1s assumed that for each year of the first biennium in which changes in the revenue laws can be made effective, the state will need $3,829,900 of revenues in addition to those which are obtained under the present system. This amount was suggested as a reasonable additional sum that the state might undertake to raise during the period required for the adjustments in the revenue system, particularly in administration. It is recognized that the suggested change in the general property tax base could not be made effective before taxes of 1932, which would be levied on valuations as of June 1, 1931.1 The elimination of intangibles from the general property tax base would, of course, involve a constitutional amendment, and in this section it is assumed that the necessary amendment will be approved so that intangibles will be exempted from the general property tax for taxes of 1932. It is very doubtful, moreover, whether any change in income tax rates could be made applicable to the taxes based upon incomes for the year 1930. This would mean that no part of the additional revenue needed could be derived from the income taxes collectible in 1931. The time factor, however, does not mean that there need be any particular delay in a bond issue for capital purposes, other than that occasioned by the time required for the necessary constitutional amendment. Although changes may be made in the general property tax base and in income tax rates for taxes collectible in 1932, it does not follow that the yield from the income tax will attain an amount as large as might beexpected fora period of several 1 Exclusive of the Merchants and Manufacturers Tax. 308 THE FISCAL PROBLEM IN MISSOURI years. The changes in administration that have been suggested are of so vital a nature that it may require some time for maximum advantages to be obtained. It will be necessary, therefore, to consider the past record of collections from this tax as a guide, making only a moderate allowance for increased revenues due to increased efficiency. No accurate forecast of revenues from this source for a number of years can be made until such time as the administrative and other adjustments have been in effect at least one year. This phase of the problem will receive further consideration in the section on the income tax. Property Taxes It has been pointed out in a previous discussion that it does not appear to be desirable to abandon the state general property tax, for the reason that the state will be in a better position to put the suggested administrative changes into effect if it has a direct interest in the revenue derived from this source. Another reason for continuing the state general property tax, at least for several years, 1s found in the fact that it is impossible to estimate with any degree of accuracy the receipts from the income tax that may result from improved administration and the abandonment of the general property taxation of intangibles. Also it would seem to be better policy to continue the state property tax at the present rates or slightly higher rates until the time when it may be possible to obtain definite evidence concerning the effect of the changes in the rates and administration of the income tax than to reduce considerably or to abandon the state rate on property and to increase the income tax rates to a greater extent than might later prove to be necessary. This factor, together with the administrative factor, seems to warrant the continuance of the general property tax rate for state purposes at the present level. It seems probable that Missouri may consider a form of classified property tax that would make possible the taxation of intangible forms of property at low rates. In recent years several states have experimented with a low-rate tax on intangibles in the hope that it would solve the problem of the escape of this form of property from taxation under the SOURCES OF ADDITIONAL REVENUE 309 general property tax. Although an analysis of the results obtained in a number of states might be valuable, it would have very little significance in the present study, for the reason that Missouri has a state income tax and the adoption of a low-rate tax on intangibles by a state that levies an income tax would be of doubtful advantage. However, the experience of a neighboring state may be summarized. In 1925! low-rate taxes were applied to money, credits, and real estate mortgages in Kansas, but were recently abandoned.” The results obtained have been appraised by J. P. Jensen as follows: “The low rate taxes on intangibles have not so far been signally successful from a fiscal point of view. They have produced something like two thirds of the revenue produced by the general property tax on intangibles. This too meagre result has been fostered by the hostility or apathy of many county assessors and still more deputies, and by the opposition of many taxpayers who believe or affect to believe that all property, whether tangible or intangible, is alike for purposes of taxation. As a result some owners of tangible property who own no taxed intangibles have had to pay higher taxes, where the assessment of intangibles has been ineffective. Thelow rate taxes have also been the occasion for the present impasse in bank taxation, though bankers were complaining of excessive taxation before the advent of the low rate taxes; and the conflict would have appeared anyway though perhaps in different form.” In short, the low-rate taxation of intangibles in Kansas was not successful either from a fiscal or from an administrative standpoint, and it further complicated the question of bank taxation. Kansas endeavored to continue the taxation of national banks by means of a tax on the value of the shares, but, in accordance with the competing moneyed capital concept, it would seem that they were not legally taxable at a rate higher than five mills. The impasse in bank taxation was one of the principal reasons for the abandonment of the low-rate tax on intangibles in that state. The 1The law was modified in 1927. A secured debts classification was added. and the rate on money and credits was increased. 2 The mortgage registration tax was continued. * Tensen, J. P., The Kansas Tax on Intangibles, Lawrence, Kan., 1928, pp. 62, f. 310 THE FISCAL PROBLEM IN MISSOURI imposition of a similar tax by Missouri could hardly be expected to aid very much if at all in solving the problem of bank taxation. Even though a low-rate tax on intangibles could be levied in Missouri that would yield an amount of revenue equivalent to the present yield from the general property tax on intangibles, it would not follow that the results obtained from such a tax would be entirely equitable. It might have the effect of distributing the tax over a greater volume of intangibles, since low rates would no doubt result in bringing out a larger volume of intangibles for taxation, but it is probable that a large number of intangibles would not be reached at all, and to the extent that this would be true, a low-rate tax would not be satisfactory. The Income Tax It seems very likely that Missouri will look to the income tax for a part of the additional revenues that it will need during the next few years. The yield of the Missouri income tax can be augmented in three ways; (1) by improving the administration, (2) by a broadening of the tax base, and (3) by increasing the rates. There 1s a widespread belief in Missouri that the evasion of the personal income tax is a serious problem.! Those who receive dividends, wages, and salaries from Missouri residents and corporations are probably reached much more effectively than are the owners of other intangibles. The reason is the section of the income tax law that provides for information at the source. Although there is no reason to believe that all taxable income from other intangibles would be reported for taxation if the suggested administrative changes were made effective, they should contribute toward that result. Furthermore, it is probable that at some time in the future it may be possible to arrange a system whereby the states imposing income taxes will be able to interchange the type of information that is required under the sections of the statutes providing for information at the source. If arrangements of this 1 Income tax collections were increased considerably in 1929 and 1930 as a result of the appointment of field auditors, who are directly responsible to the State Auditor. SOURCES OF ADDITIONAL REVENUE an kind become possible, the difficulty of reaching income from intangibles should be greatly reduced. For the present, however, a system of administration similar to that suggested in Chapter VI should produce better results, although there is no reason to believe that the best possible results could be attained at the outset. If the State Tax Commission is placed in charge of administration and indicates that it intends to assess the income from intangible property, the receipts from the personal income tax could no doubt be increased from the outset, even though the present low rate of 19, was retained. If assessment of intangible property under the general property tax were no longer possible, some taxpayers would no doubt report the income voluntarily since the tax at the most would amount to a relatively small proportion of the income derived from the intangibles. The voluntary reporting of income because of the exemption of intangibles from the general property tax and the district system of assessment and collection might produce an increase in the yield of the personal income tax of about 10%, in the first year in which the changes in administration and the exemption of intangible property were in effect. The changes in administration would probably not affect the yield of the corporation income tax to any great extent, although more accurate assessment would be possible. Corporations are required to make reports to the state authorities, and their income tax returns can therefore be checked without much difficulty. The result is that under the present system there is by no means the same opportunity for corporations to escape taxation entirely or partially as there is for an individual. Viewed as a whole, any changes in income tax rates should be predicated upon a changed system of administration and the exemption of intangible property from the property tax. To continue as at present could hardly produce any results that could reasonably be construed as equitable. This statement would be particularly applicable if the income tax rates should be increased and the taxation of intangibles at general property tax rates continued. A broadening of the tax base is the second means by which 312 THE FISCAL PROBLEM IN MISSOURI the yield could be increased. For example, the dividends received from domestic corporations and foreign corporations doing businessin the state might be included in taxable income in their entirety instead of the extent provided at the present time. Their inclusion is justified on the basis of the ability theory and is in accordance with the provisions of the Model State Income Tax Law recommended by the National Tax Association. Precedents for their inclusion exist in several income tax states. The inclusion of all dividends received would make it possible to include the dividends received from national banks in the personal income tax base without foregoing the taxation of the banks at the corporation income tax rate. The federal statute that provides the several waysin which national banks may be taxed contains a proviso to the effect that, in addition to a tax on or measured by the net income of the bank, the dividends of banks located within the state may be taxed to the recipients to the same extent that the dividends of domestic corporations are taxed, and that the dividends of national banks not located within the state may be taxed to the same extent that the dividends of other foreign corporations are taxed. Such a change in the personal income tax base, however, would only mean the uniform taxation of national bank and other dividends, and it would not eliminate to any extent the difficulty of taxing the national banks in a way that would take cognizance of the small proportion of tangible taxable assets to net capital assets, as compared with manufacturing or other corporations. The taxation of bank stock at general property tax rates makes it possible to take account of this difference, but that method of taxing national banks will not be possible if intangible property is exempted from the general property tax. Although at some future time the inclusion of all dividends of domestic corporations and foreign corporations doing business in the state in the income tax base may be desirable, their inclusion could hardly be justified at the present time, for the reason that the uncovering of the income from other intangibles will no doubt be a gradual process extending over a period of years, even though the administrative machinery is improved. To tax domestic corporations on their Rrf gems 02 4 R3 SOURCES OF ADDITIONAL REVENUE 313 net income derived within thestate and also tax thedividends in their entirety as personal income could easily mean discrimination against the recipients of dividends from domestic corporations and foreign corporations doing business in the state, as compared with those who receive income from other intangibles, unless the income from the latter were reached effectively by the income tax. The discrimination would result largely from the fact that the information at the source provision cannot be used effectively as a means of ascertaining the amount of income received from foreign corporations not registered in the state. However, an effective arrangement for information at the source between states may be possible in the future, particularly if the present trend toward state income taxation continues. Other possibilities of broadening the tax base include a decrease in personal exemptions and the taxation of the interest received from bonds issued by the state of Missouri and its political subdivisions. The personal exemptions are very small, and a further reduction would have little to commend it. The inclusion of interest received from the bonds issued by the state and its subdivisions might be justifiable, but it would affect the price at which bonds could be sold within the state, and little advantage would be gained. In recent years, moreover, large amounts of bonds have been issued by the state on a tax-exempt basis, and to include the interest received fom these bonds in the tax base would be regarded by many as a breach of faith. The possibilities of increasing the yield of the income tax by means of more effective administration are excellent. On the other hand, a broadening of the tax base does not offer the same opportunity, although the effective tax base as distinct from the legal base may be enlarged as a result of administrative improvements. A question then arises concerning the rates that would be necessary to provide additional state revenue of approximately $3.9 million per year, which may be taken as a minimum until the administrative changes are completely effected. If intangibles, including bank stock, were exempted from the general property tax base, it would mean a loss of state revenue of approximately $0.3 million. For the purpose of discussion, therefore, it may 314 THE FISCAL PROBLEM IN MISSOURI be assumed that $4.2 million represents the annual revenue needed in order to finance expenditures of $3.9 million and to compensate the state on account of the loss of revenue occasioned by the change in the general property tax base. There appears to be no satisfactory answer to the question concerning the income tax rates that could be expected to produce the necessary additional revenue. It is by no means certain that a flat rate of 2% on incomes of 1931 would produce twice the amount of revenues obtained from the income tax in 1928 or 1929, even allowing for improved administrative efficiency. Both corporation and individual incomes vary with different degrees of prosperity or depression, and any estimate of taxable income is therefore conjectural to that extent. If the rates for the personal income tax are made progressive, there is no way of estimating accurately the increased yield that will result, and the same applies to the taxation of the income from intangibles at a special rate. Because of the uncertain nature of the yield from the income tax, to obtain all the additional revenues needed from this source would involve an increase in rates that might be out of proportion to the actual requirements. They would have to be increased to a level that would make certain the yield of the necessary revenues, and since no one can estimate accurately the effect of administrative improvements on the yield, the only absolutely safe basis for estimating would be the present degree of efficiency. If the significance of the variable factors is kept in mind, the only logical solution seems to be a moderate increase in income tax rates coupled with some form of tax the yield of which will not be so uncertain. In other words, some special form of tax, which need not be continued after the yield of changed income tax rates and the effect of administrative changes can be gauged, might be used to provide a margin of security. A tax that would fill this need is suggested later. The following changes in income tax rates would no doubt increase the yield of the income tax so that 609, or more of the additional revenues, including the amount required to offset the loss of revenue resulting from a change in the general property tax base, could be derived from this tax: (1) increase in the rate on corporations from 1%, to 114%; SOURCES OF ADDITIONAL REVENUE 315 (2) change of the personal income tax rate from the flat rate of 19, to (a) 1% on the first $4,000 of taxable income, (b) 2%, on the taxable income between $4,000 and $20,000, (c) 39%, on the taxable income in excess of $20,000; and (3) a flat rate of 3% on taxable income derived from intangibles. If intangibles are exempted from the general property tax, a rate of 39 or higher on the income would seem to be justifiable. In administering the tax, income from intangibles would be deducted for the purpose of computing the tax on other income, and the tax on income from intangibles would be computed separately. It is generally accepted that the rates on corporation income should not be progressive. Two states, Wisconsin and Mississippi, however, levy an income tax at progressive rates on corporations. The principal argument against progressive rates on the income of corporations is that the natural or representative size of a corporatoin varies according to the type of business and the kind of product manufactured. There is no sound reason why any part of a $200,000 income earned by a corporation that manufactures a metal product should be taxed at a higher rate than a $20,000 income earned by a small corporation that manufactures jewelry. There is a natural difference in size and capitalization, and the levy of an income tax at progressive rates merely assumes that the ability to pay or the benefit obtained increases at a rate that is more than proportionate to income. Of course, it might be contended that many small corporations differ very little from businesses conducted by partnerships or sole proprietors, and that the progressive rates make allowances for this similarity. The similarity probably exists, but it does not follow that progressive corporation income tax rates represent a proper method of recognizing it. An exemption of a part of the income of corporations that do not earn more than a certain maximum income probably represents a more equitable method of accomplishing the desired result. Progressive rates for personal income taxes may be justified on fiscal and social grounds. Most of the states that levy personal income taxes have adopted progressive rates, and the same is true of the Federal Government. Also the 316 THE FISCAL PROBLEM IN MISSOURI National Tax Association’s Model Law provides for progressive rates on personal incomes. Although progressive personal income tax rates may be desirable, it does not follow that Missouri should adopt steeply progressive rates. Several states adjoining Missouri are at present considering the adoption of an income tax, and until the degree of progression that may be used in those states becomes known, it would seem to be the best policy to adopt rates that are only moderately progressive rather than rates as steeply progressive as are to be found in any income tax state. [t might be claimed that, since the local governments would lose revenue as a result of the discontinuance of the taxation of intangible property at general property tax rates, a portion of the receipts from the income tax on incomes derived from intangible forms of property should be returned to the local jurisdictions in which they were collected. The principal difficulty is that there is no way of estimating the yield until the changed rates have been in effect for some time, and it is therefore not possible to determine a rate that would enable the state to compensate the local governments for the loss of revenue by returning all or a large part of the income tax receipts from a special rate on income from intangibles. For a period of several years it would seem to be a better policy to provide a source of local revenue the receipts from which would be more certain and the success of which would not be so dependent on changes in the administrative machinery. After the receipts from the income tax levied on personal income from intangibles can be gauged, a plan whereby a part of the receipts would revert to the local governments might be considered. The Corporation Franchise Tax As has been explained, this tax is essentially a tax on corporate assets. Disregarding certain technical aspects, it amounts to an extra tax on corporate property including intangibles as well as tangibles. Considering the base for tFor a discussion of the theory of progressive rates, see National Industrial Conference Board, State Income Taxes, Vol. II, New York, 1930, pp. 74 f. SOURCES OF ADDITIONAL REVENUE 317 the tax and the fact that corporate property is assessed for the general property tax, there does not appear to be any good reason why the rate for the franchise tax should be increased. The continuance of the tax at the present rate is justifiable, primarily because of the fiscal adequacy of the tax, the receipts from which are not subject to the same variations as are those on a tax measured by corporate income. Although fiscal adequacy may be a good reason for the continuance of the tax, at least for the present, it might be well to consider combining the franchise tax and the corporation income tax into a tax on net income or a franchise tax measured by net income! This change would have two advantages. The administrative costs would be reduced, since it would be necessary to administer only one tax, as compared with two at present. A consolidation of the two taxes, moreover, would no doubt mean a higher rate on corporate net income, and it would therefore be possible to tax national banks at the higher rate. So long as both taxes are continued, it will not be possible to levy both an income tax and a franchise tax on national banks unless the federal statute is changed. General Sales or Turnover Taxes Although it is not a source of state revenue, this form of taxation is used in Missouri. A state law permits local turnover taxes, and both St. Louis and Kansas City have taken advantage of this source of local revenue. In recent years West Virginia has made greater use of sales or turnover taxes than any other state. For the fiscal year ended 1927, 23.8%, of the revenue of that state was obtained from turnover taxes, and in the following year the proportion was 20.4%. In 1929 Georgia levied a general sales tax, but the yield has not quite come up to expectations. Sales tax laws have also been enacted in Mississippi and Kentucky. In both states an attempt is made to reach chain store operators at higher rates. The Mississippi law endeavors to accomplish this result by means of an additional tax, while the rates provided in the Kentucky law are progressive. LIf it were desired to insure a greater degree of fiscal adequacy than a tax on corporation income or measured by income would possess, a minimum tax equal to the present corporation franchise tax could be imposed. 318 THE FISCAL PROBLEM IN MISSOURI In view of the fact that Missouri levies a tax on the income of corporations and individuals, there does not appear to be any good reason why a general sales or turnover tax for state purposes should be considered. A tax of this kind is not easy to administer. This is particularly true if exemptions are not provided that will eliminate a large number of returns from those whose taxes would be very small. Furthermore, the incidence of a sales tax may leave something to be desired. A sales tax on widely used necessities would tend to raise the prices of articles that enter into the family budgets of the workers. The amount added to the price of commodities in order to shift the tax might even exceed the amount of the tax.! Tobacco Taxes Of the states adjoining Missouri, Iowa, Kansas, and Arkansas tax cigarette sales, and the latter state includes cigars. Although only recently developed as a source of state revenue, almost one third of the states have enacted laws providing for tobacco taxes. The most recent additions to the list are New Mexico, Michigan, and Mississippi. In the two former states, however, the referendum was invoked, and the use of the tax will depend on the will of the electorate. Although a tax on cigarette sales may be opposed, it has one characteristic that would justify the consideration of this form of taxation at the present time. It has a degree of fiscal adequacy that many other taxes do not possess. Cigarette consumption does not vary to any great extent, and a stamp tax on sales could therefore be depended on as a revenue producer, regardless of the state of business. It has been pointed out that one of the principal needs of Missouri is for some form of tax that can be depended on for a considerable amount of revenue until the effect of improved administration and changed rates on receipts from the income tax can be ascertained. A tax on cigarette sales would meet this need. It has been conservatively estimated that a tax on cigarette sales in Missouri at the rates used in Iowa would vield an 1 For a discussion of sales or turnover taxation, see National Industrial Confernce Board, General Sales or Turnover Taxation, New York, 1929. SOURCES OF ADDITIONAL REVENUE 319 annual revenue of at least $1.7 million.! This estimate was based principally upon the per capita yields in Iowa and South Carolina. If this tax is considered by Missouri, it does not follow that it would have to be continued for a long period. The principal justification for the tax is its fiscal adequacy, and, if income tax receipts should exceed expectations, there might be no occasion to continue the cigarette tax for more than two years. During that period the principal revenue need of the state appears to be a form of tax that will supplement the receipts from other sources without placing an excessive burden on any one group that might later prove to have been unnecessary. If it is given serious consideration, the rates as well as the system of administration in use in Iowa could be used as a guide. Motor Vehicle Taxation It has been seen that the burden of state motor vehicle taxation in Missouri is comparatively light. If more revenue is desired from the motor vehicle traffic, the gasoline tax seems to be the most logical source from which it can be obtained, since gasoline consumption is a much better indicator of highway use than motor vehicle licenses. Accordingly, the present discussion will be confined to the gasoline tax and the manner in which an increased rate might be used to compensate the local governments for the loss of revenue occasioned by the exemption of intangible property from the general property tax. Another reason why a distribution of a part of the gasoline tax receipts may be suggested is that there is a definite connection between good rural roads and the school consolidation program of the state, which will no doubt be pushed forward more rapidly in the near future. Rural roads have not been improved uniformly throughout the state, and doubtless an investigation would show that unimproved roads are generally found in those rural sections in which consolidation as a means of solving the school problem is most needed. Aside from any other advantages that better rural roads might afford, to the extent that they would contribute to the solution of the school problem, their more rapid improvement is especially desirable. 1 The Taxation System of Missouri, p. 70. 320 THE FISCAL PROBLEM IN MISSOURI Other advantages might be claimed for increasing the rate of tax on gasoline and returning a portion of the receipts to the local governments. If the tax were increased to four cents, it should be possible to abandon the city rates that are now levied. The enforcement of the law at the higher rate would not mean a proportionate increase in the administrative costs borne by the state and would relieve the city governments of the cost of administering the local license tax. Local governments would derive a direct benefit from the tax, regardless of their proximity to the primary, secondary, or supplementary system of state highways. It might be claimed that funds returned to the local governments would not be used so efficiently as if expended by the state on the state highway system and the farm-tomarket supplementary highways. There might be good reasons to support such a contention, but the basis of comparison is probably not suitable. The comparison should be between receipts from local property taxes used for road purposes and the gasoline tax receipts that the local governments would receive. There is little reason to believe that there would be a decrease in efficiency merely because the source of the funds had been changed. In view of the facts that some substitute for the loss of local revenue resulting from the abandonment of the general property tax on intangibles is necessary if property tax rates are not to be increased, that a uniform tax on gasoline throughout the state is desirable, and that there is a definite connection between the condition of rural roads and the possibilities of school consolidation, a gasoline tax rate of four cents, two cents of which would be for the benefit of the local governments, has much to commend it. A rate of four cents would not be much above the rate on the average gallon of gasoline used in the United States, and in providing for a local distribution, Missouri would merely be following the procedure used in a large number of states. In order that the suggestion of a four-cent rate might be considered in relation to developments in other states, Table 89" was prepared. This table shows the year in which the gasoline tax first became effective in each state and the This table is presented in Appendix A, pp. 346 ff. SOURCES OF ADDITIONAL REVENUE 321 initial rate, the subsequent rates which were in effect and the rate as of January 1, 1930, the date on which it became effective, and the use made of the proceeds according to the laws in effect on January 1, 1930. Various interesting comparisons are suggested by this table. No state levies a lower tax on gasoline than Missouri. Of the states that have been used for purposes of comparison with Missouri in this study, only Wisconsin levies a two-cent tax. The two-cent tax has been in effect a longer period of time in Missouri than in any other state which levies that rate of tax. The great majority of states provide for some system of distribution of a part of the tax to the local governments. Many other specific comparisons might be made. 1f it is decided to increase the rate of the gasoline tax in Missouri and to apportion one half of the net receipts to the local governments, a number of factors might be considered in determining the bases for apportionment. Table 89 should be valuable in determining the most equitable system for Missouri, since it shows the factors in use in each state. Whatever factor or factors might be used, the system of distribution should provide for apportionments to cities, for two reasons. The cities would be the heaviest losers of revenue as a result of the exemption of intangibles from the general property tax. Also, in the interests of a uniform rate throughout the state they would be asked to forego the local taxes on gasoline that are levied at the present time. An increased tax on gasoline would necessitate a constitutional amendment, since the amendment approved in 1928 provided for the continuation of the two-cent rate for a period of ten years, unless the receipts for the purposes set forth in the amendment should prove to be inadequate. If, however, for various reasons increased taxation of gasoline is regarded as desirable, the necessity for an amendment should not be permitted to stand in the way. Ifitis pointed out that the gasoline tax is a dependable source of revenue and that increased local receipts from this source would compensate for the loss of revenue resulting from the present inequitable system of attempting to reach intangibles for the general property tax, the electorate of Missouri would doubtless be convinced of the equity and expediency of the change in question. Py CHAPTER XII OTHER ASPECTS OF THE MISSOURI FISCAL PROBLEM "N this chapter there is presented a brief discussion of | several subjects that cannot be given more comprehensive treatment within the limits of this study. It should not be inferred from the comparatively brief treatment accorded these subjects that they are unimportant. Governmental consolidation, central control of local expenditures, need for adequate statistics of local governmental finance, and municipal accounting are significant phases of the Missouri fiscal problem, although other matters may be deemed to be of greater immediate importance. GovERNMENTAL CONSOLIDATION There is probably no more effective way to reduce governmental expenditures than to reduce the number of agencies that are supported out of the public funds. There are 115 counties in Missouri, including the City of St. Louis. County lines were established many years ago, when transportation facilities differed radically from those now available. The distance from the county seat was an important factor, and in most cases this factor was given primary consideration in determining county boundaries. Improved methods of transportation have done away with the principal reason for the large number of counties in Missouri, as well as in many other states. For the most part, however, county lines remain unchanged, even though the population in many instances is declining. A declining population means increased per capita costs of county government, and one may well wonder to what extent the population of certain rural counties in- Missouri will continue to decline before county consolidation will be urged as a means of solving the problem of increasing per capita costs. Consolidation encounters 322 ASPECTS OF THE MISSOURI FISCAL PROBLEM 323 opposition, however, from several sources. Residents naturally become attached to county names. Mercantile interests in the county seats that would be affected would no doubt oppose strenuously any movement toward consolidations, as would officeholders and those with political aspirations. These and other factors militate against the possibility of reducing the number of counties. That desirable results can be obtained through county consolidation has been demonstrated. James County, Tennessee, was a small county adjoining Hamilton County, in which the City of Chattanooga is located. As a result of legislative action, a referendum vote was taken in James County only, and the consolidation proposal was carried by a ten to one vote.! Before the consolidation the prevailing school term in James County was three and four months. After the consolidation the term was increased to eight and nine months, and the building formerly used as a court house for James County is now used as a public school building for a large area. There has been a more rapid improvement of roads in the territory that formerly comprised James County. Although governmental functions on the whole are more adequately financed, the writer of the article cited states: “The last report I have seen states that the people who formerly lived in James County now, as citizens of Hamilton County, pay only about one half the taxes which were formerly necessary.” In certain rural sections the reduction was even greater. The consolidated school movement in Missouri has produced desirable results, and there seems little doubt that equally effective results might be obtained from county consolidations, particularly in "those sections of the state in which the population of certain counties is so small that the per capita cost of even reasonably satisfactory governmental services is very high. A well-planned county consolidation program might show that sixty or even fewer counties would be capable of providing much better governmental facilities and services at a lower cost than are now provided by almost twice that number. 1 The facts concerning this consolidation are adapted from an article by Walter Burr, of the University of Missouri, in the National Farm Journal, Jctober, 1930. 324 THE FISCAL PROBLEM IN MISSOURI The same principle is applicable to the numerous state boards, commissions, and bureaus commonly found. Centralization in the administration of state affairs is unquestionably more efficient and more economical than a highly decentralized system that provides for a new board or commission whenever a new function is added, regardless of its importance. Excessive decentralization results in administrative costs that are out of proportion to the work involved. Overlapping jurisdictions are another cause of high administrative costs. For a number of years the State Tax Commission in Missouri has been equalizing property valuations, but ‘this is also the function of the State Board of Equalization, which equalizes that which has already been equalized. It is true that the proper central administration of a tax system is expensive, but the example cited raises the question whether Missouri might not have made more efficient use of the funds expended, if the overlapping jurisdictions had never been permitted to exist. CenTtraL ConTROL OF Local EXPENDITURES Although limitations of local indebtedness and tax rates have long been assumed to be the prerogative of states, the central control of local expenditures is a comparatively recent development. It is recognized that any form of control, to be effective, must include expenditures, and various states have enacted laws designed to subject local expenditures to a degree of control by the State Tax Commission or some other central agency. Indiana has developed a system of control that provides for local publicity of assessed valuations, proposed expenditures, and tax rates and for appeals to the State Board of Tax Commissioners. The law provides that, after formulation and publication of a budget on forms prescribed by the State Board of Accounts, showing in detail the money proposed to be expended during the succeeding year, the valuation of all taxable property within the jurisdiction, and the proposed rate of taxation, the proper officers of the municipal corporation’ shall establish the several tax levies and rates. ; i County, township, city, incorporated town, school corporation, or other taxing 0aY. ASPECTS OF THE MISSOURI FISCAL PROBLEM 325 It is also provided that, before the levies and rates are established, there shall be a public hearing on the proposed budget. Ten days’ notice, to be given by publication of the budget, levies, and rates and of the time and place of the public hearing in two papers’ representing the two leading political parties, and by posting the notice in three public places in the taxing district, is required. The several tax rates and levies as established are reported to the county auditor, who in turn reports them to the State Board of Tax Commissioners. The tax rates and levies as reported stand approved as the rates and levies for the succeeding year unless an appeal is made. Ten or more taxpayers in any municipal corporation, other than those who pay a poll tax only, who are affected by any levy or rate as established and who may feel aggrieved by any item thereof may file a petition with the auditor of the county in which the municipal corporation is located, setting forth their objections on a prescribed form. The petition and other information are certified by the county auditor to the State Board of Tax Commissioners, which is required to fix a date for a hearing on the petition within a reasonable time. This hearing must be held in the county in which the municipal corporation is located, and notice thereof must be given to the executive officer of the taxing unit and to the first ten tax payers whose names appear on the petition, at least five days before the hearing. After the public hearing the State Board of Tax Commissioners has the power to affirm or decrease the total tax levy or any item thereof, and, after its action is certified to the county auditor, the decision of the State Board is final and conclusive. If a reduction is ordered, the State Board must indicate the item or items in the budget affected by the reduction. The control is, therefore, a joint control of taxes and expenditures. In the event that it is contemplated to expend more money than is provided in the published budget or in the budget as modified because of any casualty, accident, or extraordinary emergency, the same system of control is applicable. Municipal officers are guilty of malfeasance in office, if any appropriations are made in excess of the amount estimated 1 One suffices if there is only one in the taxing district. 326 THE FISCAL PROBLEM IN MISSOURI in the budget or in excess of any additional expenditure without first giving notice to the taxpayers and affording them the opportunity to appeal. In addition, they are liable to the municipal corporation for the amount of the excess appropriated, the costs, and a penalty of 25%, of the excess appropriation, recoverable by a suit instituted in the name of the State of Indiana. In its simplest terms the Indiana system is based on local initiative. Although local initiative cannot always be relied on, the mere fact that an appeal may be made acts as a deterrent against excessive or unusual increases in the budgets. Although the Indiana law reposes final authority in the State Board of Tax Commissioners, it should be noted that it can take action only on appeal by taxpayers. In reality, then, the Indiana system involves central control through local initiative. A system similar to the Indiana system would no doubt be reasonably effective as a means of local expenditure control in Missouri. However, it might be opposed on the ground that a comparatively small number of taxpayers might succeed in reducing expenditures for certain functions that the majority of taxpayers were willing to approve. Opposition to the plan on that basis would not be entirely valid, since adequate reasons must be presented by the petitioners before definite action is taken by the central authorities. Furthermore, all those affected in any way have a right to voice their objections at the public hearing held subsequent to the filing of the petition by the taxpayers. Unfortunately, economy in the financing of local governmental functions is not so easily achieved as in the financing of business enterprise. During the present century vertical and horizontal consolidations in industry have been common. If it were recognized that similar results could be obtained by consolidating smaller governmental divisions and instituting effective systems of budgetary and expenditure control, it should be possible at least to hold the cost of local government within reasonable limits. ASPECTS OF THE MISSOURI FISCAL PROBLEM 327 NEED FOR ADEQUATE STATISTICS OF Local GOVERNMENTAL FINANCES Complete data for functional expenditures by local governments in Missouri, as was previously pointed out, are not available. Although considerable information is compiled by the State Auditor, the data are not complete since not ail functions are included, and each year certain counties fail to report. The need for complete statistics of expenditures is in a way more urgent than for statistics of tax levies or collections and indebtedness, for it is only through expenditures statistics that the subject of comparative costs of local government can be approached. The per capita cost of the respective local governmental functions in counties in the several parts of the state would be a most interesting subject for investigation, but the investigator would undoubtedly be confronted with incomplete and non-comparable statistics in many cases. To the extent that this would be true, accurate comparisons would be impossible. If statistics of local governmental expenditures are to serve their purpose, uniformity is the first requirement. In order to meet this requirement, local expenditures throughout the state would have to be classified in the same manner and in accordance with the classification scheme worked out by the one responsible for the compiling. Otherwise little in the way of effective results could be obtained. MunicipAL! ACCOUNTING If uniform statistics are to be compiled, at least some degree of uniformity in accounting procedure is almost a necessity. The system that is most effective for a city of considerable size may not be applicable to a county, but at least comparability within the same class of governmental divisions is desirable. In order that an indication may be given of what might be accomplished in Missouri, a brief resumé of the development of municipal accounting in Wisconsin is presented. tAs used in this section, “municipal” includes counties and all governmental Jivisions smaller than the state. 328 THE FISCAL PROBLEM IN MISSOURI In 1909 the Wisconsin legislature directed the tax commission to investigate municipal finances. The investigation showed that accounts were kept in such a manner as to preclude the possibility of comparing results. As a consequence of the findings, a law was enacted that enumerated the duties of the tax commission in connection with the collection of statistics and the formulation of a uniform system of municipal accounts. The law provided that the tax commission shall (1) inquire into the system of accounting of public funds in use in towns, villages, cities, and counties, (2) devise, prescribe, and, at the request of any town, village, city, or county, install a system of accounts that shall be as nearly uniform as practicable, and (3) audit the books of the town, village, city, or county officers, on the request of the town or village board, city council, or county board, or on its own motion. A municipal accounting department was established by the tax commission, and effective results were obtained from the outset. It was discovered that in a number of cases there had been wilful misappropriation of funds, due in part to the laxity of governing bodies. Although the individual amounts were small in many instances, they would have reached a considerable total, if continued over a period of years. The municipal accounting department in Wisconsin has been continued up to the present time, and its work has been expanded. During 1927 and 1928 the work done included 392 individual field engagements, as follows: “103 audits, 129 closing inspections, 18 installations, 84 financial report inspections, 54 miscellaneous inspections, and 4 assignments upon which preliminary work for 1929 was done.” The distribution of the 392 engagements by class of municipality was as follows: cities, 112; counties, 136; towns. 113: villages, 26; school districts, 5.2 The receipts of the Wisconsin Municipal Accounting Department for the fiscal year ended in 1928 amounted to $55,920,and the expenditures, to $53,721. An advantage to the municipalities is that the work is done at actual cost. ! Report of the Wisconsin Tax Commission, 1928, p. 68. 2 Idem. *Ibid., p. 267. CHAPTER XIII GENERAL SUMMARY HE principal findings of this report relate to the | expenditures of the state and local governments; the indebtedness, state and local; the tax system and its administration, particularly the administration of the general property tax; state and local tax revenues; the farm tax problem; public school finance; financing the capital requirements of the state; problems of tax burden; possible sources of additional revenue; and other aspects of the Missouri fiscal problem. State AND Local EXPENDITURES The expenditures of the Missouri state government have been much larger in recent years than in 1913 and in 1918. For 1928 net state expenditures amounted to $38.6 million, and gross expenditures were $44.5 million. The state highway construction program has been the principal factor causing increased expenditures. For the period 1923 through 1928, capital expenditures for highways amounted to $113.3 million, and those for highway maintenance were $12.1 million. The variation in highway expenditures has been the principal cause of the changes from year to year in the net and gross totals for state expenditures. Unlike highway expenditures, the disbursements of the state for education have been predominantly for maintenance. The latter function ranks second on the basis of the percentage of total state expenditures. During the period 1923 through 1928 highways and education accounted for almost 709%, of the next expenditures of the state government. Other functions, expenditures on account of which are classified under net expenditures, ranked as follows: Protection, social welfare, general government, economic development, and miscellaneous. 1G 330 THE FISCAL PROBLEM IN MISSOURI A comparison of the net state expenditures of Missouri with those of eleven other states in the same section indicates that during the period 1923 through 1928 only Minnesota, [llinots, and Ohio had expenditures greater than Missouri. In relation to net total expenditures Missouri expended less for maintenance purposes than any other state used for comparative purposes. Highways accounted for a larger proportion of total state expenditures in Missouri than in any of the eleven states. Since highway expenditures in Missouri were predominantly for capital purposes, the low proportion for maintenance is attributable largely to the highway function. [t is estimated that the gross expenditures of all local governments in Missouri amount to $163.6 million for the fiscal year ended in 1928. Of this amount the four largest cities, including school and other special districts therein, accounted for $90.6 million.! Education and highways are the most important local governmental functions, judged from the standpoint of the volume of expenditures. State AND LocaL INDEBTEDNESS The history of state indebtedness in Missouri may be logically divided into four periods. During the first period there was no state debt of significant size at any time. The second period, which began soon after the middle of the nineteenth century, was marked by borrowing for internal improvements, particularly for railroad development. The third period was characterized by a conservative policy, in accordance with which the indebtedness incurred for internal improvements was liquidated. In the fourth and present period, Missouri has taken a more liberal attitude toward state borrowing. The constitutional limitations on the borrowing power of the state government, imposed in 1875 when the present state constitution was adopted, were amended in 1920, in order that funds mightbe obtained through borrowing for highway purposes and for the payment of a soldiers’ bonus. In 1922 the state began to borrow on a large scale, and the net bonded debt of the state increased from $0.70 per capita in 1918 to $7.96 per capita in 1923 and $17.98 per 1 Exclusive of payments for debt redemption. GENERAL SUMMARY 331 capita in 1928. The amount of the net bonded debt at the close of the latter year was $64.4 million, as compared with only $1.5 million at the end of 1921. Only two of the eleven states selected for purposes of comparison with Missouri had a larger amount of net bonded debt than this state at the close of the year 1928. The net bonded debt of Missouri local governments is estimated at $153,041,000 for the year 1928. Of this amount the four largest cities in the state accounted for slightly more than $90 million. Combined state and local net bonded debt amounted to $60.68 per capita in 1928, and the ratio of state and local net bonded debt to wealth was 1.93%. Both of these figures are considerably lower than comparable figures for the United States as a whole. The cost of money obtained from the sale of the $60 million of state highway bonds varied from 4.052%, to 4.817%. The variation between the two extremes is largely attributable to differences in maturity dates. Excluding the first three series, which were issued for relatively brief periods, the maximum cost of money for any of the remaining series was found to be only a little more than 4.3%. The average coupon rate of interest on bonds issued by local governments in Missouri during the years 1926 to 1929 was 4.35%. This figure is only roughly indicative of the cost of money, since it is not known to what extent local bonds were sold either at a premium or a discount. Tae Missourt Tax SysTEM A number of constitutional provisions with respect to taxation are significant in that they impose conditions that must be observed or that can be changed only by amendment. Of these provisions, the uniformity rule and the section which provides that “all property subject to taxation shall be taxed in proportion to its value” are probably the most important. The constitution definitely limits the state rate on property, as well as the rates that may be levied by the local governments. The principal taxes comprising the Missouri tax system are (1) the general property tax, including the private car tax; (2) poll taxes; (3) the inheritance tax; (4) the income 332 THE FISCAL PROBLEM IN MISSOURI tax; (5) special taxes on business, including incorporation taxes, the corporation franchise tax, the foreign insurance company tax, and the express company tax; (6) the gasoline tax and motor vehicle licenses; and (7) miscellaneous business and non-business licenses and permits. The general property tax is an important source of state revenue and predominates in the finances of all local governments. The exemptions from the general property tax are comparatively few in number, although the value of exempt property is large. The total state rate on property is a combination of rates levied for specified purposes. For taxes of 1928 the state rate was $0.14 per $100 of assessed valuation, and for taxes of 1929 and 1930 the rates were $0.13 and $0.12, respectively. Local rates on property vary widely. The average is probably between $1.95 and $2.00 per $100 of assessed valuation. In general, there are considerable differences between urban and rural tax rates. Other important factors tending to cause difference in tax rates are variations in assessment ratios and differences in the extent to which certain species of property escape taxation. The inheritance tax is an important element in the state revenue system. The rates are steeply progressive, beginning with 19, on the first $20,000 above the exemption passing to a close relative and attaining a maximum of 309, on shares amounting to more than $400,000 passing to very distant relatives or non-relatives. Statutes have been enacted in recent years that provide for the levying of an additional state tax, in accordance with federal legislation enacted in 1926,and for interstate reciprocity in certain inheritance tax matters. The Missouri income tax has been in effect since 1917. Since 1921 the income tax rate has been 19%, for corporations as well as individuals. Residents are taxed on income received from sources within and without the state; nonresidents are taxed on income from sources within the state; and domestic and foreign corporations are taxed on income from sources within the state. The incomes of fifteen distinct classes of organizations, associations, or corporations are not taxed. The personal exemptions are $1,000 for a single person, $2,000 for a married person or head of family, and $200 GENERAL SUMMARY 333 for each dependent. Corporations are not granted an exemption. The corporation franchise tax is based upon capital and surplus, the rate being $0.50 per $1,000. As a result of a court interpretation, surplus is construed to be the difference between capital and total assets, and the tax in practice is essentially based on assets. Missouri levies a special tax on foreign insurance companies. The rate is 2%, and the tax base 1s the amount of premiums received in the state or on account of business done in the state. Express companies are taxed by means of a special tax on gross receipts. Missouri levies a gasoline tax of two cents per gallon, the lowest rate now in effect in the United States. Motor vehicle license rates are also moderate. Cities are given authority to levy gasoline taxes and motor vehicle license taxes for local purposes. State AND LocaL Tax REVENUES The most significant changes in recent years in the sources of state revenue are the decline in the relative importance of the general property tax and the increasing volume of receipts from motor vehicle taxation. Inheritance tax collections amounted to more than $3 million in 1928, an amount more than 509%, greater than the collections in either of the two years immediately preceding. Income tax collections in 1928 amounted to $3.7 million, or 10.8%, of the tax revenues of the state. In 1926 the receipts from the income tax amounted to $4.3 million, the largest amount that has been obtained from this source in any year. Gasoline tax receipts amounted to $6.6 million in 1928, and $3.6 million of state revenue was obtained from motor vehicle licenses. For each year of the period 1923 through 1928, during which both the gasoline tax and motor vehicle license tax were in effect, the combined receipts from the two sources amounted to at least 449, of the total tax revenue of the state. Local tax receipts in Missouri amounted to $104 million in 1928, as compared with $78.6 million in 1922. More than 909 of local tax revenues is derived from the general property tax. Per capita local taxes amounted to $22.73 in 1922 334 THE FISCAL PROBLEM IN MISSOURI and $29.00 in 1928. The rate of increase was more gradual than in per capita state taxes. In 1928 state tax collections in Missouri were exceeded in four of the eleven states used for purposes of comparison. On a per capita basis state tax collections in Missouri amounted to $9.50 in 1928, a smaller amount than in nine of the eleven comparable states. TAX ADMINISTRATION The administration of the general property tax is admittedly unsatisfactory. The administrative agencies include the county and other local assessors, the county boards of equalization, the State Tax Commission, and the State Board of Equalization. Although the legal standard of assessment for the general property tax is true value in money, in practice the average ratio of assessed valuation to true or full value for real estate, as indicated by sales value, is found to be about 55%,. The grand total valuation of all property for taxes of 1929 amounted to approximately $4.9 billion. Real estate accounted for 729, of the total valuation, and the valuation of town lots exceeded that for lands by approximately 509%. Personal property valuations amounted to $632 million for taxes of 1929, as compared with $920 million for taxes of 1921. The trend in public utility valuations has been definitely upward for a number of years. The equalization process does not result in any appreciable change in total valuations for the general property tax. For taxes of 1928 the total valuation of real and personal property as recommended by the State Tax Commission to the State Board of Equalization was only 1.29, greater than that reported by the assessors. The changes made by the State Board of Equalization resulted in a decrease of about one one-hundredth of 19, of the total as recommended by the State Tax Commission. The present methods of equalization, it is found, are not effective in eliminating or reducing to a minimum the inequalities in assessments. Both the State Tax Commission and the State Board of Equalization exercise certain func- GENERAL SUMMARY 335 tions in respect to equalization, the former body having only recommendatory powers, and the latter possessing final authority. This delegation of equalization functions to two bodies inevitably results in some overlapping and duplication of work. It appears, furthermore, that the ex-officio character of the membership of the State Board of Equalization hardly qualifies this body to perform satisfactorily the difficult and highly expert work of equalization. The situation thus disclosed raises the important question whether it might not be advisable to abolish the State Board of Equalization and to delegate the functions of equalization with final authority to the State Tax Commission, and to confer upon the latter certain additional powers in respect to the supervision and control of assessments. The amount of property escaping assessment under the present system is very. large. The State Tax Commission in 1924 estimated that $2 billion of taxable intangible personal property was escaping assessment. It is evident that, although the volume of taxable intangibles is increasing, the proportion reached for taxation is declining. The confiscatory aspect of general property tax rates in proportion to the income from intangibles, together with the fact that property, to be readily assessed, should be visible, probably constitute the most important reasons for the failure to reach intangible property in an effective manner. It appears further that a large amount of livestock no doubt escapes assessment and that motor vehicles frequently escape taxation under the general property tax. The inequalities resulting from the assessment procedure are principally in the assessment of bank stock, the assessment of motor vehicles, and the variations in real estate assessments. Bank stock is assessed at practically 100%, as the ownership of this stock and other information concerning it are matters of public record. Motor vehicles are frequently undervalued. The average valuation in some counties for taxes of 1928 was found to be less than $100 per car. Real estate is assessed on the average at about 55%, of sales value, as shown by records of real estate transfers from which the ratio of assessed value to sales value was computed. There are great differences among the ratios for the individual 336 THE FISCAL PROBLEM IN MISSOURI counties, and a special study made several years ago indicated the existence of considerable variations betweenseveral sections of the same city and county. The 1929 real estate ratio study indicated a minimum county ratio of 319, and a maximum of 729%. Possible changes in the administration of the tax system include the reorganization of the equalization procedure, which has been mentioned previously; the exemption of intangibles from taxation under the general property tax, which 1s generally held by those interested in taxation to be the first step towards effective improvement of the administration of the general property tax, and the taxation of intangibles only on the basis of income; the abolition of the township assessment system in those counties which have the township form of government; the separate assessment of land and buildings; the assignment of the administration of the state income tax to the State Tax Commission, the tax to be assessed and collected by district representatives of this commission; the transfer of the administration of the express company tax from the State Auditor to the State Tax Commission; and possibly also the transfer of the inheritance and gasoline taxes to the same commission. The continuance of the state tax on general property seems to be desirable and may be justified on administrative grounds. Supervision of the assessment procedure can be made effective more readily if the state has a direct interest in the receipts from this tax. However, this does not imply that the state rate might not be gradually reduced, if such a step proves to be feasible. THE Farm Tax ProBLEM IN MIssoURrI The amount of the general property tax on farm property in Missouri in 1927 was estimated at $20,063,000 by the United States Department of Agriculture. In addition to the general property tax, the farmer pays other taxes, including the income tax, the gasoline tax, and motor vehicle licenses. Available statistical information indicates that farm taxes in Missouri are relatively much lower than the average for the United States. Studies of the relation of GENERAL SUMMARY 337 farm taxes and net rents from farm operations show that Missouri ranks low among the states for which such data are available. This low ranking is confirmed by the finding that Missouri ranks below the average when comparisons are made of the estimates of taxes on farm property relative to value and income factors ‘compiled by the United States Department of Agriculture. The data for owner-operated farms point to the same conclusion, namely, that taxes on farm property in Missouri are relatively low in comparison with other states in the same general region and the United States as a whole. Nevertheless, there is a farm tax problem in Missouri. Some of the elements in this problem are the declining net income from agricultural operations; the failure of the assessment procedure to make due allowance for the decline in capital value in assessing farm property; the variation in assessments among the several counties as well as within the same county or school or other special district; the apparent over assessment of the larger farms in a period of declining land values, under the present system of assessing land and buildings jointly; and the alleged discrimination against the farmer operating a mortgaged farm as compared with the farmer who owns his property outright, under the present system of taxing farm mortgages. The possible changes in farm taxation that suggest themselves are the separate assessment of farm land and buildings, the assessment of farm property on a basis more closely approximating uniformity throughout the state, and the elimination of farm mortgages from the general property tax hase and their taxation under the income tax only. PusLic ScaooL FINANCE The problem of public school finance must be considered in connection with the plan proposed by the recent State Survey Commission, which would transfer to the state government a substantial part of the burden now borne by the school districts and would involve additional state aid expenditures for maintenance over a ten-year period estimated at $100.6 million. This plan would seem to be open 1 338 THE FISCAL PROBLEM IN MISSOURI to the following objections: (1) It assumes that a local tax rate of $0.20 per $100 of assessed valuation is a satisfactory basis for an equalization program; (2) it assumes that a levy of $0.20 per $100 is equivalent to collections of that amount; (3) the problem is not approached from the standpoint of the one-room districts, the elimination of which is perhaps the greatest need; (4) it is based in part upon the shifting of tax burdens; and (5) it represents an untried program of school finance in Missouri. Analysis of the present situation in respect to school expenditures and school needs indicates that the following factors should be considered in any carefully planned approach to the problem of public school finance: (1) The differences in the economic status in the several sections of the state; (2) the shift in population from the rural communities to urban centers; (3) the problem of the one-room rural districts; (4) the value of local initiative in school affairs; (5) the difficulty of using assessed valuation as a basis for equalization of educational opportunities; and (6) the desirability of approaching the problem from the standpoint of need. Consideration of these factors points to the conclusion that the most obvious approach to the problem of public school finance appears to be through a process of consolidation and redistricting. As a basis for such a program the superintendent of schools in each county could prepare a map showing the present district lines in the county and also possible enlarged districts. Also, the county superintendent could make available to the school authorities of the state such information as he might have concerning the attitude in the county toward consolidation and redistricting. Such information would enable the county superintendents and the state school authorities to work out a program for redistricting and consolidation. Financing THE CaPiTAL REQUIREMENTS OF THE STATE The problem of financing the capital requirements of the state involves consideration of the comparative advantages of a pay-as-you-go policy as compared with borrowing. The GENERAL SUMMARY 339 expenditures for capital purposes recommended by the State Survey Commission are taken as the basis for the discussion of this problem. The total expenditures for capital outlays and extraordinary repairs, as recommended by the Commission for a ten-year period, amount to $39,615,000. The principal amounts included in this total are for buildings at penal, eleemosynary,and educational institutions. Smaller amounts are included for public school buildings, a state office building, and a new governor’s mansion. In view of the very small capital expenditures for other than highway purposes in recent years, there is little doubt that a large part of the total is in the nature of an accumulated deficiency. This conclusion is substantiated by the several reports of the State Survey Commission. A large part of the capital expenditures of the state in the immediate future will be for buildings that have long been needed by the penal and eleemosynary institutions. If these expenditures were to be met entirely out of currentrevenues, there would undoubtedly be further delay in providing the buildings that are badly needed at the present time. The same applies to certain buildings that are needed at the state educational institutions. It seems clear that a pay-as-yougo policy is not applicable as a method of financing such capital requirements as are in the nature of an accumulated deficiency, and serious consideration should be given to a bond issue as a means of eliminating the present deficiency. ProsLEMs oF Tax BURDEN Problems of tax burden considered in this study include (1) the burden on tangible and intangible property; (2) the burden of the Missouri income tax, with specific reference to the urban nature of the tax; (3) the tax burden on corporations; (4) the burden on state and national banks; (5) the burden of motor vehicle taxation. Although it is usually contended that tangible property, particularly real estate, bears a disproportionate share of the state and local tax burden and that intangible property is paying less than its fair share, it appears that intangibles which are actually reached under the general property tax are 340 THE FISCAL PROBLEM IN MISSOURI relatively over taxed. The problem is largely a matter of intangible property escaping taxation under the general property tax. The Missouri income tax is predominantly an urban tax. For taxes of 1928 the per capita personal income tax levy in St. Louis City was $1.40. St. Louis City, St. Louis, Jackson, Buchanan, and Greene counties accounted for 89.9%, of the personal income taxes levied in the state, and in this group of counties the per capita levy was $1.34, an amount twice as large as for the state as a whole. An analysis of the combined personal and corporation tax levies leads to the following conclusions: (1) the per capita income taxes levied are larger in those counties that have a large urban population; (2) the poorer counties contribute almost negligible amounts to the receipts from this tax; (3) the corporation income taxes are paid largely by the comparatively few counties of the state in which the larger cities are located; and (4) when all of the counties in the state are considered, it appears that the Missouri income tax is largely an urban tax. In the absence of satisfactory data, no definite conclusions can be laid down in respect to the relative burden of taxes on corporations in Missouri and other states. In the calendar year 1928 the federal corporation income taxes collected in Missouri amounted to a little less than $34 million. Although the amount of federal income tax payments attributable to business done in Missouri cannot be accurately determined, this figure and the relatively higher urban tax rates on property afford reason for accepting the conclusion that “the business interests of Missouri, excluding farms, pay half or more of the total taxes.” National banks in Missouri are taxed on their real estate, and the shares are also assessed for the general property tax. In addition to these two taxes, banks chartered by the State pay a corporation franchise tax and are assessed for the income tax. The result is a discrimination against the statechartered banks. Since state banks are ordinarilyin competition with national banks, the two extra taxes cannot be shifted to customers, except possibly in unusual cases. Other things being equal, the extra taxes would result in smaller dividends or smaller total capital Liabilities. GENERAL SUMMARY 341 Motor vehicle taxation in Missouri is lighter than in many other states. The ratesfor thelicense tax are moderate, and the two cent tax on gasoline is very low as compared with the average for the United States. Many motor vehicles escape taxation under the general property tax. A number of cities levy a gasoline tax and collect motor vehicle license taxes, with the result that motor vehicle taxation varies throughout the state. SOURCES OF ADDITIONAL REVENUE Any estimate of the additional state revenues that will be needed during the next few years must depend largely on the position taken concerning (1) the financing of capital requirements by means of a bond issue as compared with current revenues; (2) the amount of additional maintenance appropriations to institutions of higher learning, including teachers’ colleges; (3) additional state aid for public school purposes; and (4) additional state support for conservation of the public health and care and treatment of the mentally defective and feebleminded. As has been seen, there is an administrative reason for continuing the state tax on property. Another reason is the impossibility of accurately estimating the receipts from the income tax, if the system of administration is changed and intangible property is exempted from the general property tax. A form of classified property tax providing for low rates on intangible property does not seem to offer a solution of the problem of reaching this form of property for taxation. The experience of Kansas in recent years was so unfavorable, that the low rate taxes on intangibles were abandoned. The yield of the Missouri income tax may be augmented in three ways: (1) by improving the administration; (2) by a broadening of the tax base; and (3) by increasing the rates. Improving the administration offers certain possibilities for increasing the yield, although its effect cannot be accurately estimated in advance. A broadening of the tax base, so as to include all dividends in the personal income tax base, would increase the yield, but,unless it were reasonably certain 342 THE FISCAL PROBLEM IN MISSOURI that income from other intangibles was being reached for taxation, such a broadening of the base would involve discrimination against dividends received from domestic corporations and foreign corporations doing business within the state. There is no satisfactory answer to the question concerning the changes in income tax rates that would have to be made, if all of the additional revenues needed were to be obtained from the income tax. This would be particularly true, if it were decided to adopt moderately progressive rates on personal incomes and a flat rate on income from intangible property. The receipts from the income tax vary in accordance with business conditions, and it is by no means certain that a flat rate of 29% in all incomes for 1931 would produce twice the amount of revenues obtained in 1928 or 1929, even though a centralized system of administration were adopted. The best policy would therefore seem to be to obtain a part of the increased revenues desired from some tax with a high degree of fiscal adequacy and to increase the income tax rates moderately. Although progressive rates on personal incomes may be desirable, it does not follow that Missouri should adopt steeply progressive rates. There are no sound reasons why corporation income tax rates should be progressive. Natural differences in size as between industries tend to make a progressive rate schedule inequitable when applied to corporate income. The corporation franchise tax is essentially a tax on assets and, disregarding certain technical aspects, it is in effect an extra tax on property, including intangible as well as tangible property. The continuance of the tax at existing rates seems to be justified, primarily because of its fiscal adequacy. Since a tax is levied on personal and corporation incomes, there does not appear to be any good reason why a general sales or turnover tax should be considered. A number of states adjoining Missouri tax cigarette sales, and almost one third of the states have enacted laws providing for tobacco taxes. Regardless of the objections that might be raised, a tax on cigarette sales has a degree of fiscal adequacy that many other taxes do not possess. One of the GENERAL SUMMARY 343 revenue needs of the state seems to be some form of tax with a high degree of fiscal adequacy, to supplement receipts from other sources until the effect of improved administrative machinery and changed rates on the receipts from the income tax can be ascertained. A tax on cigarette sales for a period of several years is worthy of consideration as a means of supplying this need. The abandonment of the taxation of intangibles at general property tax rates would mean a loss of revenue to the local governments. An increase in the gasoline tax could be made, and a portion of the receipts returned to the local governments. This procedure would be in accordance with a policy found to be practicable in a great many states. Then, too, there is a definite connection between good rural roads and the carrying forward of a school consolidation program. Also, an increase in the state-wide rate should make it possible to abandon the city rates that are now in effect, thereby astablishing a uniform rate throughout the entire state. OTHER ASPECTS OF THE Missouri FiscaL PROBLEM The consolidation of county and other local governments would seem to be an effective method of reducing the cost of local government in Missouri. A well-planned county consolidation program might indicate that sixty or even fewer counties could provide better governmental facilities and services than are now provided by 115 counties. The same principle is applicable to the numerous state boards, commissions, and bureaus, and excessive decentralization can only result in costs that are out of proportion to the work involved. A system of local expenditure control similar to the one in effect in Indiana would no doubt be reasonably effective in keeping the cost of local government in Missouri within proper bounds. There is an urgent need for adequate statistics of local governmental finances in Missouri and this is particularly true of statistical information concerning local expenditures. Uniform systems of accounting and expenditure classification are desirable, if accurate data are to be obtained. APPENDIX APPENDIX A [aBLE 89: StaTE GasoLiNE Tax Rates: InrriaL Rates, SuBseQuent Rates, Rate AnD Usk or ProcEEDS As oF January 1, 1930 Source: Official State Statutes and Secondary Sources. Compiled by National Industrial Conference Board When First Levied hse--uent ates NTA oo N Rate Cent Year . Conse | or | ! Gallon Gallon 1923 | 1 | 3 When Effective Oct. 29, 1927 Rate Cents per Gallon Use of Proceeds Maine. ........... 4 ‘09, for maintenance of state and state aid highways. "7249, for state aid highway construction. 215%, for third class highway construction. Note: Receipts for December, January, February and March are reserved for state’s part in financing snow removal; balance not required for this purpose to he returned to the varinne accounts in above ratio. New Hampshire. ... 1923 - Jan. 1, 1928 4 To State Treasurer: . . 3 cents for maintenance and improvement of highways. . | cent for interest and principal of special bond issues for construction, reconstruction and repairs of highways and bridges damaged during flood of Nov., 1927. To State Treasurer for general state purposes: . An amount equivalent to receipts from this source is appropriated by the legislature for highways. To State Treasury: credicad to Ninhmaw find To State Treasurer: One-half divided as follows: . 1. Resa sopropratd annually to be expended in accordance with the provisions of the “Federal Highway Act.” Vermont, . ........ Massachusetts. . .. A 1929 = Rhode Island... ...! 1925 1 os | April 1, 1929 | ¢ Jan. 1, 1929 .. | Junel, 1927 | ‘ 3 Balance used: 1. To meet principal and interest payments on state highway and bridge construction bonds. b. For construction, maintenance, etc., of state roads, highways and bridges. One half for construction, maintenance, etc., of state roads, highways, and bridges. To State Treasurer to be used for construction, maintenance and reconstruction of state highways. 759 to state treasury, appropriated for construction, maintenance and repairs of highways and bridges. 209%, distributed to counties, not including counties in New York City, in proportion to highway mileage, other than state and county highways, outside of cities and villages. 507, to New York City for the general reduction of taxation. _— Th pe HH mmm——n Tc State Treasurer: . $90,000 annually to Department of Commerce and Navigation. 2. Balance for construction and maintenance of roads and bridges in State Highway System. a reeeetvim———————eeeeeese fe t————eeeeerem 114 cents to State Treasurer to credit motor license fund. receipts into which are ased for: 1. Construction and maintenance of state highways and state aid highways. 2. Payment of principal and interest on state highway bonds. 3. Miscellaneous expenses of Department of Highways. :/ cent to counties in which collected for: . Construction and maintenance of roads and highways. 2, Interace an ~naanty road bonds. Connecticut. ...... New York. ....... 1921 July 1, 1925 | ool Mav 1.1920 | 2 New Jersev....... 1927 Tuly 1. 1927 — ennsylvania. .... | 1921 | 1 ]23 | July 1.1929 | 4 Ohio... | 1925 | 2 Ane] 17. 1929 | 4 2 cents divided as follows: 309, to municipal corporations on basis of motor vehicle registrations, to be used for construction and maintenance of roads and streets. 159%, to counties equally for maintenance and repair of county roads. $507, to state for maintenance and repair of highways required to be maintained L-- Napartment of Hichwavs. TaBLE 89: STATE GasoLiNg Tax Rates: InrriaL Rates, SuBseQueENT Rates, RaTE AND Use oF PROCEEDS As OF JANUARY 1, 1930 (continued) Source: Official State Statutes and Secondary Sources. Compiled by National Industrial Conference Board When First Levied C-rhseruent ’ ates Sta Ts Year Rate 5 Cents per allon Cents per Gallon Zon . ents When Effective per Tle Use of Proceeds Ohio (Continued) ¢ cents—divided as follows: 309, to state for construction and reconstruction of state highways. 5% to counties equally for construction and reconstruction of county roads and highways. 3% to municipal corporations on basis of motor vehicle registrations therein for construction and maintenance of roads and streets. 09% to townships equally for construction and reconstruction of roads and highways. "4 to state highway fund for state highway purposes. “4 to counties, cities and towns, gasoline fund. 1. 34 distributed as follows: a. Y to counties equally for construction and maintenance of highways and bridges. b. 24 to counties on basis of free gravel, macadam and county unit roads, for same purposes as a. 2. 4 to cities and incorporated towns on basis of 1920 United States Census for maintenance and repair of streets and bridges. %4 to state for construction of bond issue routes 1 to 185. 4 to counties in proportion to motor vehicle license fees collected for: 1. Construction of state aid and county roads. 2. Debt service on county bonds issued for construction of state aid and county rade Indiana. .......... o23 4 April 1, 1929 . Alinois........... 927 & \ug. 1, 1929 Michigan. ....... Ny 1925 | oe Sept. 4,1927 | 3 To state highway fund, expended each year as follows: 1. To meet deficiencies in amounts owing counties and townships on stateaward highways. ). For payment of principal and interest on state highway bonds. 3. To each county—one-eighty-third of $6 million—50%, of weight tax. *. To cities and villages, $2,000 per mile of trunk-line highways maintained. i. Balance, if any, to general construction and improvement of vublic hichwavs. Nisconsin. Co] 1925 | April 1, 1925 | ? asoline tax receipts, together with those from motor vehicle licenses and Federal Aid allotments, constitute a single fund to credit of Highway Commission. 1. From this fund there is appropriated— a. $100,000 to State Highway Commission. b. 10%, of balance for improvement of state trunk-highway system. Special allotments are made to towns, cities and villages for improvement of roads not in state or county trunk system and to cities for maintenance of bridges on state trunk system and streets forming connections between portions of same. Balance remaining after (1) and (2) is known as the construction fund, which is alloted to counties, 40% on basis of motor vehicle registrations and 60%, on basis of total highway mileage outside of cities and villages, for improvement of county trunk highways and construction and improvement of state trunk-hichway svstem. Minnesota. ......... OW. +o rrennn] 1925' 2 1925 May 1, 1929 ! or —- erent ——r iii To trunk-highway fund for construction and maintenance of highways. . cent returned to counties and apportioned by the county board on a system of roads designated as countv-aid roads. a 1 cent tax used (1) for bridge and right-of-way refunds, (2) balance to primarv road fund. ) cents tax divided as follows: 14 to primary road fund. *” to county road fund, distributed to counties in proportion to area. to township road fund distributed to counties in proportion to area, to -onships in proportion to miles of hichways. 1 July 4.1927 | 3 [ABLE 89: StaTE GasoLINE Tax Rates: Initiar Rates, SUBSEQUENT Rates, RaTE AND Use oF ProcEEeDs As oF January 1, 1930 (continued) Source: Official State Statutes and Secondary Sources. Compiled by National Industrial Conference Board When First Levic Rate, Jan. 1, 1930 AP Rate ~ Cents wants | per Gallo | Gallon 1925 | 2 | Date When Effective So Gallor Jan. 1,1925 | 2 Missouri. ...... ... North Dakota... . .] 1919 i 1 July 1,1929 | 3 South Dakota....... Nebraska. ....... ] 1935 | 2 i 921) | Taly 1,1927 | 4 Mar, 29,1929 | 4 Kansas. ..........| 1925 | 2 April 1, 1929 | Delaware. .........] 1923 | * ey 1 ba Mar. 24,1927 } 5 April 1.1927 | 4 , — — A District of Columbial 1924 ' 2 Virginia. | 1923 I May 23, 1924 Mar. 19. 1928 414 West Virginia. .....I [923 v é 1 July 1, 1927 | North T— on 1 3,4 | April 1,1929 | 5 Use of Proceeds Credited together with motor vehicle license receipts to state road bond interest and sinking fund. The credits to this fund consist of the amounts remaining after deducting thie costs of collection, the cost of maintaining the State Highway department and the State Highway Commission and the cost of enforcing notor vehicle and traffic laws. If in any year there is a balance in the state oad bond interest and sinking fund beyond the debt service requirements for the succeeding calendar year, such balance is transferred to the state road fund md peed far onartfind PIrhncan to state for construction and maintenance of state highways. 4 to counties, on basis of motor vehicle registration fees collected therein, for construction and maintenance of county highways and bridges leading up to, 1nd connecting with, federal-aid and state highways. To highway fund for: ". Payment of principal and interest on outstanding highway bonds. 7. Construction and maintenance of state highway system. 34 to state to be weed as follows: 1, 24 for construction and improvement of federal or state highways. 2. 1% in conjunction with federal-aid money. 3. Balance for construction and maintenance of certain roads in state and federal highway system. 7 to counties, on basis of motor vehicle registration for county highway purposes. $800,000 to counties—$900,000 after April 1, 1930. 1. 40%, to counties, distributed equally. 2. 60%, on basis of assessed valuation. Balance to be expended by State Highwav Commission for construction and maintenance of state roads, Ce ————————————————— ————————— tent T'o special state fund, distributed in same manner as other funds received by State Treasurer. Dh ee ———eiare———————————————— ir —— 114 cents to State Roads Commission for use as follows: . . 1. % for construction and maintenance of streets and highways in city of Baltimore. 2. Balance for construction of lateral roads. #4 cent distributed as follows: . . 1. 3% to city of Baltimore for elimination of grade crossings. . 2. Balance to State Roads Commission for elimination of grade crossings. | marta tn cate wnad m-inssmance fund and expended as appropriated. _ EP A aemmecssiiititim— To United States Treasury for credit to District of Columbia and appropriated for road and street improvement and repair. A A 709, to state for construction of roads and projects comprising state highway system. 10% to counties distributed in same manner as state aid moneys, primarily for maintenance of roads and bridges in county highway systems. ~ 7 -te Treasurer for: . Construction and maintenance of roads and highways. 2. Payment of interest on state road bonds. Ames es To State Treasurer: 1. 4 cents for credit to state highway fund. . Lo 2. 1 cent for credit to county-aid road fund by State Highway Commission. allocated as follows: . 2. 34 on basis of area of counties. . L 14 on basis of population of counties. United States Census, 1920. TaBLE 89: StaTE GasoLiNe Tax Rates: INrriaL RATES, SUBSEQUENT Rates, Rate AND Use oF ProceEDs As OF JaNvary 1, 1930 (continued) Source: Official State Statutes and Secondary Sources. Compiled by National Industrial Conference Board When First Levied Subse-! quent Pates Rate, Jan. 1, 1930 NE ATE late C Cr Rate nt Cents i When Effective | oe Gallon | Gallon Gallon 19221 2 | 3,5! Mar. 16,1929 + 6 Use of Proceeds South Carolina. ... A —— "cents to State Highway Department for construction and maintenance of state highway system I cent to counties, on basis of amount of motor vehicle registration fees collected, for construction and maintenance of county highways not a part of state system. a, e—————e eee ee ee # cents to state highway fund for construction of state- and federal-aid highways. 1 cent to counties, on basis of state-aid system mileage, for construction and maintenance of public roads. + cent for school purposes. _ cents to State Treasury: I. For expenses of administration. 2, Balance to state road license fund for construction and maintenance of state roads. I cent to counties, in proportion to amounts collected, for debt service on bonds issued by counties and road and bridge districts for road and bridge purposes, prior to April 1, 1929, cent to counties, on basis of road indebtedness of counties and road and bridge districts on April 1, 1929, for debt service on such indebtedness. cent to counties equally. 34 to County Board of Public Instruction. 14 to Board of County Commissioners. cent to State Treasury for school purposes; detailed provisions as to use and distribution of funde Georgia. ......... ' 1921 IT Sha) Sept. 1, 1929 Florida............ >) | 6 921 | 1 [3,4,51 July 1, 1929 % Kentucky. ........| 192¢ TERHEREEE : soc cng 1923 | 2 Feb. 21, 1926 _ . To State Treasurer for construction and maintenance of roads, highways, and bridges. 3 f° 2 1 To State Treasurer for credit to a fund to be used solely in the construction and maintenance of the highway system of the state. 1. 1 cent to special fund to redeem county highway bonds issued on or before July 1, 1928. 2. 1 cent is set aside for state aid to county roads. Alabama. 119231 2 | Tan. 25.1927 | 4 2 cents to State Treasury for division equally among the counties and to be used only for the maintenance and repair of roads, highways, and bridges. 2 cents to State Treasury to credit public road and bridge fund for: 1. Payment of interest and sinking fund charges on highway and bridge bonds. 9. Construction and maintenance of public roads and bridges by State Highway Cammiceton. -d 2 2 Mississippi. ...... 1922 | 1 | 3,4 | Dec. 1. 1928 | 5 409, for: 1. Maintenance of State Highway Department. 9. Construction and maintenance of the state highway system and bridges. 60%, to county treasurers, in proportion to number of motor vehicles, for: i. County roads and bridges. Y Intersect and tav on hichwav bonds. ere Arkansas..... -.. 1921 Tune 9. 1927 I ¢ !rostate highway fund, receipts into which are used for: i. Building and maintaining public highways and bridges. ». Interest and retirement of state highway bonds. 1 Appronriations to eonnties and saad districts for satirament of road bonds. A NR S—— - {ouisiana.........| 1921 | 1 | 2 . 4 | To general highway fund for: Lous | | Jan. 3, 1929 | 1. Construction and maintenance of the system of state highways and bridges. 2. Such other purposes as provided in Paragraph a. Section 22, Act VI of the Constitution of Louisiana. Y 1 cent is specificallv allotted to debt service on highway bonde TaBLE 89: State GasoLINE Tax Rates: InitiaL Rates, SuBseQUeENT Rates, Rate anp Use or ProcEEDS AS OF JANUARY 1, 1930 (concluded) Source: Official State Statutes and Secondary Sources. Compiled by National Industrial Conference Board I Subse-Winer quent Rate Cc Cons i il When Effective Gallop | Gallen 214.3 | Tune 22, 1929 Year 1923 1 Oklahoma. ....... 1 cents to state highway construction and maintenance fund to be expended for: 1. Maintenance and repair of state highways. 2. Construction of primary system of state highways. cent to counties, on basis of area, for construction and maintenance of county or townshin hichwavs and bridees 75% to state highway fund for construction and maintenance of public highways as designated by State Highway Commission. 159, to free school fund. oD a ret—————————————————— ee i eeesegser eet To state highway fund for construction and maintenance of the federal highway system of highways in the state and highways leading from countv seats to the federal system. a t———————————————— ee inline ——— To state highway fund for construction and maintenance of highways. 75% to state highway fund for: . } 1. Payment of interest on state highway bonds issued after passage of this Act, effective December 21, 1929. . 2. Maintenance and improvement of state highways. 25% to counties of the state for credit to county road fund. 1. 30% on basis of area, excluding National Parks. 2. 309%, on basis of rural population, last federal or state census. 3. 409, on basis of assessed valuation. Id 1 Texas. . . 19231 ” | July 16, 1929 1 ¢ Montana. ........ 1921 2, ~ 2" April 1.1929 | RR 1923] 2 . > Mar 11927 Wyoming... ..... 1023] 1 [7%] April 1,1929 | A 4 Colorado. .........| 1919 { 1 2,3 | May1,1929 | 70% to state highway und. 27%, to counties, on basis of mileage of state highways, or construction and maintenance of public highways. 19, to State Highway Department for construction and maintenance of streets, roads, or highways designated by State Highway Department in towns, cities, or counties, apportioned to counties on basis of motor vehicle licenses issued. — Ye a ree —— To pay interest and principal of debentures issued in anticipation of receiots from this source. Balance to state road fund for: 1. Construction and maintenance of state highways. 2. To meet provisions of federal-aid road law. 34% to state highway fund. 34 to counties on basis of amount of the tax received, for construction and main. tenance of county highways and bridges. —————————— — TE TE te rr oreer————————————— April 1, 1925 31 To state fund in amounts sufficient to pay interest and sinking fund charges on state road bonds. Balance to state highway and maintenance fund. April 1, 1925 | 4 {To state highway fund: 1. Transfers are made to county-state highway interest and redemption funds of certain counties to cover interest and redemption payments on bonds issued under legislative authorization prior to March 19, 1929. CC BME, I a rm mm emm—— 2 cents to motor vehicle fund for use in the construction and maintenance of highways. ' cent to counties for construction and improvement of lateral highways. 1. 14 equally among the counties. 34 of this allotment to cities, on basis of assessed valuation, in case of first-class counties. 1. 14 on basis of registered motor vehicles. 3. 14 on basi~ - © ~=-mker of farms, last Federal Census. Tn state highwav fund. 1 cent tax to state highway construction fund. 2 cents tax divided as follows: 14 to state highway maintenance fund. 14 to counties on basis of registered motor vehicles, for construction and mainronance of rnade and bridges. New Mexico oo 1916 | 3 {1 Arizona . . -....... 921 | 1 Hah. s:mvecsesn I —— 2 Nevada. . . . 1923 214 | 1923 2 Washineton. ..... | 19211 1 ) Oregon........... ' 1919 “1 a3 Jan. 1,1930 @ - California. ....... 1923] 2 Tay 29, 1927 | 3 APPENDIX B SOURCES AND METHODS The sources of the data used in compiling the statistical tables presented in this study have been indicated in the tables. It is, therefore, unnecessary to list in this Appendix the various sources used. However, there are a number of matters concerning which a more detailed explanation is desirable than could conveniently be included in the text of the study or in footnotes to the statistical tables. In compiling expenditures data for state and local governments, the classifications used by the United States Bureau of the Census have been used, with a few important exceptions. Corrections are included under protection in this study, as are expenditures for the relief of soldiers and sailors, policemen, and firemen. However, it was not possible to make any change in the Census data for 1913, and the amounts shown for protection, social welfare, and miscellaneous for that year in Tables 2, 10, 12, 13, 14, and 15 are not comparable to the data for 1918 and later years. The net totals in these tables, however, are entirely comparable. It should be noted that in compiling the data inTable3 and other tables in Chapter I that deal with state expenditures, expenditures for public utilities are included under net expenditures, while in the tables in which data for cities over 30,000 are presented, public utility expenditures are excluded from net expenditures. In previous studies the Conference Board has followed the latter practice. However, in the present instance it was found that no public utility expenditures were reported for the state of Missouri for any of the years for which data are presented and that the amounts reported for other states used in this study for comparative purposes were of negligible importance. Public utility expenditures were reported for only four of the eleven comparable states, as may be seen in Table 6, and for only one of the four states did public utility expenditures amount to more than 1% of the net total for the period 1923-1928. It was therefore immaterial whether state expenditures for this function were included or excluded in compiling the net total, and it was decided to include them, thereby making it necessary to compile only one additional comparative table, that for interest payments, which is included in Chapter II, in order to ack SOURCES AND METHODS 357 present as complete a picture of state expenditures as the data permit. Because of the greater relative importance of the public utility expenditures of city governments, the city expenditures for this function are excluded from the net total in Tables 10, 12, 13, 14, and 15. Expenditures of Iowa and Oklahoma for capital purposes for the period 1923-1928, as shown in Table 6, are slightly larger than the comparable totals in Table 3. The differences are attributable to certain payments for capital purposes included in table 6 which were offset by receipts from the public but which could not be deducted from the expenditures for the individual department with which they are identified because the actual outlays were smaller than the offsets. The estimate of total local governmental expenditures included in Chapter I was obtained as follows: To the expenditures of the four cities over 30,000 for purposes other than debt redemption there was added an estimated amount for other local governments for purposes other than debt redemption. This figure was obtained by adding the tax receipts of these governments, bonds issued, estimated receipts from miscellaneous sources, and state aid payments received. In order to obtain the gross total, to the total thus obtained there were added the payments for debt redemption by all local governments, as reported by the Commercial and Financial Chronicle. In making an estimate of this kind, it is assumed that the cash balances of local governments other than those of the cities over 30,000 aggregated the same amount at the end of the year as at the beginning. It should be noted that of the total estimate of $163.6 million a great deal more than one half is accounted for by expenditures of cities over 30,000 for purposes other than debt redemption. Since the total estimate includes a known quantity of considerable size, it follows that the margin of error is not so large as it might first appear. The estimate of local interest payments was obtained as follows. The local net bonded debt, other than that attributable to the four large cities, was multiplied by a rate of 4.35%, and to the amount thus obtained there was added a small estimated amount on account of interest on short term indebtedness other than that of the four cities and the total interest payments of the four cities, as shown in Table 10. In the analysis of local expenditures the amount of $2 million was deducted on account of duplication in school expenditures occasioned by the fact that interest payments are included under incidental expenditures in compiling the school data presented 358 THE FISCAL PROBLEM IN MISSOURI in the Missouri school reports. The amount deducted was obtained by multiplying the school indebtedness reported in the 1928 Report of the Public Schools of the State of Missouri by an assumed interest rate of 4.3%. Certain duplications in expenditures for education and debt redemption could not be eliminated. The reason for regarding the amount of $19 million, shown on page 33, as a minimum is found in the fact that certain payments for debt redemption and education, as explained above, could not be eliminated from the total for functions other than the five to which the estimate of $19 million to $22 million applies. Likewise, the elimination of the interest duplication was only approximate. It has no doubt been noted that Joplin has not been included in the expenditure and other tabulations for cities over 30,000 in this study. Although this city now has a population in excess of 30,000 and was included in the United States Bureau of the Census tabulations for cities over 30,000 a number of years ago, in recent years data for this city have not been compiled, since the Census population estimates did not indicate the requisite population. The estimate of local net bonded debt for 1928, presented in Chapter II, was obtained as follows: The figure for the net debt of all local governments was obtained from Public Debt, 1922, a publication of the United States Bureau of the Census, and from this figure there was deducted a small amount of floating debt reported for the large cities in the Financial Statistics of Cities series. Bonds issued during the period 1923 through 1928 and retirements for the same period were obtained from tabulations in the State and Municipal Compendium, a publication of the Commercial and Financial Chronicle. The retirements were then deducted from new issues, and the remainder, after allowing for such sinking fund changes as could be ascertained, was added to the 1922 figure. Tables 50 and 52 in Chapter VI may not be readily understandable to one not familiar with statistical procedure. Each of these tables consists of a frequency distribution and a cumulative frequency distribution. A comparison of the first and sixth columns and also of the fifth and tenth columns should indicate clearly the difference between the two forms of distribution. The discussion of capital requirements in Chapter IX is based very largely upon the estimates prepared by the State Survey Commission. Although $40 million is used as a basis for discussion in the latter part of this chapter, it is not claimed that this amount represents an accumulated deficiency. Although it is generally admitted that there is a deficiency, the exact amount of the de- SOURCES AND METHODS 359 ficiency probably depends quite largely upon the views of the individual who 1s considering the problem. In considering the question of capital requirements, this limitation was recognized, and the revenue analysis was based upon $40 million, because it represents approximately the total recommended by the State Survey Commission. Likewise, the amount of $40 million can be conveniently used as a basis for reducing or increasing the estimate of funds required for debt service, if in the opinion of the reader the capital additions and extraordinary repairs that might be financed through borrowing should be less than or more than $40 million. The per capita computations included in this study are based upon the estimated population as indicated by the trend between the years for which the federal census is taken. The state population estimates used were as of the middle of the fiscal years, and the county estimates used in computing the per capita figures in Tables 86 and 87 were as of January 1, 1928. JURRN01095582 3 30 gE 3 ; @ 5 — ¥ § iz 3 3 3 A Q he wm ny > \) vy) 4)! > on ? i ND -— wh 0 wt ~~ } c <Q © I =] <D ] = N So rd i: 0 ni i SOURCES OF ADDITIONAL REVENUE 309 general property tax. Although an analysis of the results obtained in a number of states might be valuable, it would have very little significance in the present study, for the reason that Missouri has a state income tax and the adoption of a low-rate tax on intangibles by a state that levies an income tax would be of doubtful advantage. However, the experience of a neighboring state may be summarized. In 1925! low-rate taxes were applied to money, credits, and real estate mortgages in Kansas, but were recently abandoned.? The results obtained have been appraised by J. P. Jensen as follows: “The low rate taxes on intangibles have not so far been signally successful from a fiscal point of view. They have produced something like two thirds of the revenue produced by the general property tax on intangibles. This too meagre result has been fostered by the hostility or apathy of many county assessors and still more deputies, and by the opposition of many taxpayers who believe or affect to believe that all property, whether tangible or intangible, is alike for purposes of taxation. As a result some owners of tangible property who own no taxed intangibles have had to pay higher taxes, where the assessment of intangibles has been ineffective. Thelow rate taxeshave also been the occasion for the present impasse in bank taxation, though bankers were complaining of excessive taxation before the advent of the low rate taxes; and the conflict would have appeared anyway though perhaps in different form.” In short, the low-rate taxation of intangibles in Kansas was not successful either from a fiscal or from an administrative standpoint, and it further complicated the question of bank taxation. Kansas endeavored to continue the taxation of national banks by means of a tax on the value of the shares, but, in accordance with the competing moneyed capital concept, it would seem that they were not legally taxable at a rate higher than five mills. The impasse in bank taxation was one of the principal reasons for the abandonment of the low-rate tax on intangibles in that state. The 0 va >> wl oO 0 4 1 The law was modified in 1927. A secured debts classification was added, and the rate on money and credits was increased. 2 The mortgage registration tax was continued. 8 Jensen, J. P., The Kansas Tax on Intangibles, Lawrence, Kan., 1928, pp. 62, f. 3 2 wm 8g » oo on + 0 0 A 3 mo 0