POSSIBLE PROCEDURES IN FIXING RATES I%)
ity the bond issue, if any, is also to be taken care of. The
cost of the improvement is, in other words, to be distributed
fairly to those that will benefit thereby. This is usually done
by so fixing the term of the bonds that the cost will be distributed
over a sufficiently long period. of time. The determination
of this time period need not be in any definite relation to
the life of the parts of the improvement. The improvement
itself will usually be one that may be regarded as having unlimited
life, such as parks, playgrounds, streets, and the like.
When the term of the bonds of longest life has been fixed on the
basis of the probable life of the main elements of the improvement,
or in some other way, then a determination must be reached
as to the best and most equitable rate of amortization.
This amortization may take place at a uniform rate per year,
bearing heavily on present day property owners — Straight Line
Method.
It may take place at an increasing rate per year:
(a) According to the scheme outlined under the Equal Annual
Payment Method.
(6) According to any arbitrary scheme that will approximate
the compound interest Sinking Fund Method of estimating the
annual amortization increment.
Or, it may be deferred for a time and then take place according
to either of these methods.
In the case of a public service property constructed by a
municipality the amortization of capital usually begins at or
soon after the acquisition of the property and in the case of a
utility constructed by a private owner, the amortization of
capital should begin under the Straight Line Method and the
Equal Annual Payment Method at the beginning of operation,
and, theoretically under the Sinking Fund Method or the Unlimited
Life Method as herein fully explained, not at all in so
far as rate-base determination is concerned, during the continuance
of full private ownership.
In Fig. 3 a comparison is made between the annual amortization
allowance computed by the Straight Line Method and the
De
