USA > Massachusetts > Commonwealth history of Massachusetts, colony, province and state, volume 5 > Part 31
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With the introduction of motor vehicles and the need for added highway expenditures, the license fee for registration of motor vehicles became a substantial source of revenue-in 1915 it was $1,200,000, and in 1917, $1,962,000. Almost from the start such revenue was set aside directly for highway construction.
These added revenues did not, however, prevent substantial increases in the amount which was necessary for the State to assess back upon the towns and cities. From 1890 until 1903 the State tax remained at or below $1,750,000. Then it rose steadily to $9,750,000 in 1915.
WORLD WAR BONDS
The World War brought many problems to the Common- wealth, in the handling of which prominent citizens contributed personal time and effort in an amount that cannot be esti- mated. The largest single burden on the Commonwealth was the payment of a bonus of $10 a month to those entering the service prior to January 15, 1918, and another bonus of $100 to every Massachusetts citizen who served in the Army or Navy of the United States. A total sum of approxi- mately $22,000,000 was required for these two items, complete payment of which was provided through special taxes in the years 1919 to 1923 inclusive.
LATER FINANCES (1918-1929)
From the war period on, the requirements of the various administrative departments of the Commonwealth have con-
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LATER FINANCES
tinued to expand. Education now calls for about $7,000,000 annually ; mental diseases about $10,000,000 a year; correc- tion about $3,000,000 a year; and public health just over $2,000,000. For public works in 1928 was spent $13,900,000, largely for highway construction. The combined expenditure of the Commonwealth in 1928 was $51,600,000, besides $1,- 120,000 interest on debt and $1,042,000 towards debt retire- ment. The total includes some items formerly paid from in- come of individual institutions, and not reported among gen- eral expenditures.
With the issue of notes in 1919 to take care of war bonus payments, the net debt rose to $40,433,000. During the last ten years the debt has been steadily cut down to $11,181,000. This improvement has been accomplished in spite of the fact that the direct State tax assessed back upon towns and cities has steadily decreased from $14,000,000 in 1921 to $8,500,- 000 in 1929.
These favorable conditions have been made possible through the growing income of the Commonwealth from its other sources of taxation. The share of the State from taxation of corporations of all classes, including insurance companies, banks, savings deposits, public utilities and other business corporations, has grown with the expansion of all of these types of business to just over $11,000,000 per year. With the rising wealth of the citizens the income from inheritance and estate taxes has risen to slightly under $11,000,000 annu- ally. Motor vehicle fees, with the rapid increase in the use of automobiles, have risen to over $13,400,000 in 1928. A reduction in 1929 appears to have been more than made up by the 2 cent per gallon tax on gasoline sold in the State for automotive purposes.
In the year 1928 the total income from all these sources was $34,567,000, comparing with $11,269,000 in 1915. As indicated previously, the difference between revenues from these sources and the total expenditures of the Commonwealth is derived from the direct State tax and from miscellaneous departmental fees, sales of products from prison industries, etc.
The contingent debt of the State rose nearly $8,000,000 in 1920, due to advances for construction of the Cambridge
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subway. Another important addition to the contingent debt of the State has been for the extension of the Metropolitan Water Supply System to reach sources of supply further west in the State. The total Metropolitan Water Supply expendi- ture has now reached $60,000,000. The net total of the con- tingent debt, after sinking funds, rose to $57,107,000 in 1920, but since 1923 has remained close to the $51,000,000 mark.
GROWTH OF A BUDGET SYSTEM (1691-1910)
The desire for a more adequate budgetary system was in nowise a new development in the history of the State. Under the Province Charter granted the Colony in 1691, the General Court, elected by the citizens of the Colony, was given the power to levy taxes; the resulting funds to be disposed by warrant under the hand of the governor (appointed by the Crown). The conflict of these two interests led to a budgetary development by the legislative branch, sufficiently complete to permit a single bill to cover substantially the entire appro- priations.
Following the disruptive effects of the Revolution on the finances of the State, various attempts were made to central- ize the preparation of estimates for submission to the General Court for appropriations. In 1849, this work became the function of the auditor, so continuing for many years. In 1905, the fiscal year was changed to terminate on November 30 instead of December 31, in order that the actual, instead of the estimated, expenses for the last fiscal year might be stated to the legislature early in its annual January session, in connection with estimates for the ensuing year. The finan- cial leadership of what came to be termed the Ways and Means Committee, grew steadily throughout the entire period.
EARLY BUDGET MACHINERY (1910-1918)
In 1910, the constant attempt to develop a more complete coordination of income and outgo resulted in a law which for the first time in the history of the State drew the governor in- to the budgetary process. Estimates were to be transmitted to the auditor by November 15, and by the latter to the gover- nor and council the first week in January. The governor
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BUDGETARY IMPROVEMENT
was then to transmit to the General Court, with his recom- mendations, departmental estimates and estimated revenue; and in the case of special appropriations and capital outlays, he was to recommend the amount to be raised by issuance of bonds. This was the first law passed by any State, definitely turning over to the Governor the responsibility and opportu- nity of drawing a budget.
The next year a Democratic governor faced a Republican legislature. The governor secured authority for the employ- ment of experts to investigate estimates submitted by depart- ments. Subsequently the Budget Act was repealed, and a Commission on Economy and Efficiency created, consisting of the Auditor and two appointees of the Governor and Coun- cil, to collect and transmit to the Governor and to the Legis- lature estimates of expenses and recommendations as to appropriations. In 1916 its powers were transferred to the new Department of the Supervisor of Administration.
The 1917 legislature passed a bill bringing under legislative control, through the requirement of annual appropriations, revenues of special funds previously expended under stand- ing laws and without specific appropriation. The same Legis- lature appointed a joint special Recess Committee on Finance and Budget Procedure, with authority to prepare a prelim- inary budget or financial scheme for the year 1918.
This committee proceeded in a very thorough-going way to prepare a budget, which was passed by the legislature sub- stantially as drawn. In May, 1918, the legislature passed a bill, prepared by this same committee, embodying the im- portant essentials of an executive budget system, providing for the review and assembly of estimates under the authority of the Governor and recommendations by the Governor as to appropriations and as to the sources from which funds should be derived. The budget system so established lacked mainly permanence, for which a constitutional amendment was necessary.
BUDGETARY IMPROVEMENT (1918-1930 )
The Constitutional Convention of 1918 proposed the neces- sary permanent basis for the comprehensive system now in force. Other amendments limited the purposes for which the
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Commonwealth may borrow money; required a two-thirds vote of the General Court for authorizing loans ; and provided for the reorganization of the executive and administrative work of the Commonwealth into not over twenty departments. The budget as now presented annually by the governor early in the legislative session embodies a comprehensive view of the financial situation of the Commonwealth, a careful study of required expenditure and sources of income with recom- mendations as to whence any necessary additional funds would be derived. A complete appropriation bill is embodied in the governor's budget report.
MUNICIPAL FINANCE (1890-1915)
From 1890 on, the towns and cities of the State were con- fronted with much the same financial problems as the Com- monwealth itself. While the revenues from their share of taxes on corporations and banks rose from $2,360,000 in 1890 to $6,907,000 in 1915, the State tax assessed upon them more than offset this increase. By 1915, expenditures of cities and towns for operation and maintenance had reached $78,193,355; for the cities and towns over 5,000 in population the total was $71,187,961 compared with $49,034,614 in 1907, the earliest year in which adequate tabulated municipal ex- penses included even the largest towns. The increase in total taxes levied on polls and property for city, town and county purposes from $29,753,000 in 1890 to $82,610,186 in 1915, indicates that the entire period was marked by an expansion in the functions of local as well as State government.
Even these rising assessments upon the citizens came far short of paying for all of the projects undertaken. The combined net municipal debt of all cities and towns in the State stood in 1890 at $70,700,000 and at $194,788,000 in 1915. Hence the legislature in 1911 demanded a report upon municipal finances and indebtedness. This report was espe- cially helpful in bringing out weaknesses of existing legisla- tion; and furnished a basis for comprehensive action taken by the 1913 legislature, which aimed to prevent the incurrence of fixed debt for current expenses, to prevent the improper re- funding of debt, and to provide more certain means for insuring payment of the debt at maturity.
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TAXATION OF INTANGIBLES
The debt limit was left substantially unchanged at 21/2 per cent of the average three-year assessed valuation for cities and 3 per cent for towns. Incurrence of debt for improper purposes was largely eliminated by broadening the lists of specific allowable purposes for indebtedness within the debt limit, and slightly broadening certain purposes, such as water supply, gas or electric plants, and playgrounds, for which debt outside the limit might be incurred.
It was required that all cities should operate under a budget recommended by the mayor, the city council being permitted to reduce but not increase items. Towns and cities were also permitted to request the Bureau of Statistics to install uniform accounting systems to show clearly their operations and condi- tion. The Bureau of Statistics, later termed the Division of Accounts, has become a clearing house of information and a source of advice to towns and cities on financial matters, which has gradually improved the financial soundness and stability of municipal affairs throughout the State.
TAXATION OF INTANGIBLES (1915-1930)
One of the most difficult problems with which towns and cities had to contend was the proper assessment of intangible property, such as bonds, stocks, etc. Not only was it difficult to ascertain the amount of such holdings of any individual, but strong competition existed between towns and cities in the effort to attract citizens of substantial wealth to establish their residence therein because of low tax rates, or low assess- ments of intangible property. On the basis of recommenda- tions of a special legislative commission of 1915, the 1916 legislature established a tax on incomes, both those derived from wages, professional or business efforts and those derived from interest, dividends and the purchase or sale of property, both tangible and intangible. This tax replaced local taxa- tion of intangibles and is assessed by the State on a uniform basis. After deducting the cost of collection, the revenue is distributed back to the towns and cities in proportion to their respective assessments under the State tax. This brought into the towns and cities revenue of $12,540,000 in 1917, gradually rising from that figure. The new tax has been
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more uniformly enforced, and has eliminated the difficulties and irregularities of the previous situation.
The taxation of motor vehicles presented difficulties through lack of uniformity and through frequent deferment of pur- chase date beyond the tax assessment date. In 1929, the general property tax, as applied to this form of property, was replaced by an excise tax, levied on all motor vehicles, regis- tered and kept in the Commonwealth. The tax is assessed at a rate uniform throughout the State.
INCREASING LOCAL EXPENDITURES (1915-1930)
From 1915 to the present, the scale of municipal expend- itures has continued to increase. Expenditures for main- tenance and operation in 1915 were $78,193,355; in 1927 they were $200,372,072, while payments for interest and debt retirement had risen to $43,653,470. Schools accounted for $69,610,069 of current expenses ; highways, $23,579,850; protection of persons and property, $33,056,852; health and sanitation, $16,928,483 : each of these figures being well over double the expenditure of twelve years earlier.
The combined net debt of towns and cities has increased from $194,301,223 in 1915 to $283,601,975 in 1929, an aver- age annual increase of $7,357,000. The increase during the past ten years has been at the rate of $9,509,000 per year, but for the last two years at a rate of only $2,139,660. At the end of 1929, $77,105,309 (over a quarter of the entire net debt) is classified as "enterprise debt," which, as a general rule, is retired from earnings of the projects for which they are incurred (water supply, for instance) without burdening other revenue.
At the same time, the revenues of cities and towns from their share of corporation taxes have grown from $6,907,191 in 1915 to $14,932,406 in 1928. Taxes on polls and prop- erty for city, town and county purposes rose from $82,610,186 in 1915 to $201,429,240 in 1928; while an income tax of $23,- 828,276 replaced tax on intangibles, formerly included under general property tax. Gross real-estate valuation increased from $3,573,681,970 in 1915 to $6,292,963,588 in 1929. Dur- ing the greater part of the period, property taxes assessed
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EARLY BANKS
increased even faster than valuations, so that the average tax rate through the State rose from $19.05 in 1915 to $30.34 in 1926. It has, however, since declined to $29.12 in 1929.
EARLY MASSACHUSETTS BANKS (1784-1865)
The Commonwealth of Massachusetts from the beginning exercised particular care in its supervision of matters having to do with the financial well-being of its inhabitants. Dur- ing the past century this supervision has been exercised par- ticularly with reference to corporations created under State laws for the purpose of receiving deposits of money from the public at large, especially the various forms of banking and insurance companies.
The beginning of banking in Massachusetts, with the in- corporation in Boston of the second bank chartered in the United States, in 1784, has been referred to earlier in this work. The first comprehensive banking law was passed by the General Court in 1829, superseding the system by which individual charters were granted. By 1837 there were 134 banks in Massachusetts; but as a result of the panic in that year, 32 of these banks failed in the ensuing seven years. This led to the establishment of a system of official bank ex- aminations by the State in 1933, and the creation of a Board of Bank Commissioners.
Between 1840 and 1855, only two Massachusetts banks failed, both meeting their obligations in full. The crisis and suspension of specie payments in 1857 brought trying condi- tions which were successfully weathered. The banking capital of the State about this period reached a maximum in 1862; the 138 banks had a combined capital of $67,544,200.
With the passage of the National Banking Law in 1863, giving privilege of issuing circulating notes only to the Na- tional Banking Associations thereunder created, the State banks rapidly transferred to national bank charters. By the end of 1864, Massachusetts had 51 national banks, and a year later 207, with a total capital of $79,582,000. By the end of 1889, the number of national banks had risen to 256, with a capital of $96,867,000 and deposits of $164,498,000.
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PUBLIC FINANCE OF MASSACHUSETTS
EARLY SAVINGS BANKS (1816-1865)
Massachusetts possesses the second oldest savings bank in the United States, and has from the first been among the leading States in the encouragement and protection of its mu- tual savings-bank system. This bank, The Provident Institu- tion for Savings, was incorporated by the General Court in 1816 and is said to have been the first savings bank incorpo- rated by any governmental agency. Its incorporators peti- tioned the General Court for its establishment, "in order that all classes of the community may be exercised to the practice of frugality and especially industrial mechanics, either jour- neymen or masters, seamen, laborers, and men of small cap- ital, widows, and others, may receive from their savings of wages or profits, regularly deposited and systematically in- vested in public stocks or otherwise, a profit proportional to the success of the institution and prosperity of the country."
In 1834 a general law was enacted, establishing a uniform charter and conditions under which savings banks might be incorporated and operate. This required an annual report of the financial condition of each institution, which is said to be the earliest effort of general legislation in this country to make public the record of the condition of such institutions.
RISE OF TRUST COMPANIES (1865-1889)
Further commercial banking activities developed under State charters in the growth of trust companies, initially formed to transact safe deposit and trust business. The first such charter was granted in 1865 to the Boston Safe Deposit and Trust Company, which actually started business in 1875. The Worcester Safe Deposit and Trust Company was actually the first safe deposit company to operate in Massachusetts (May 1, 1869). The New England Trust Company, opened February 20, 1871, was the first in Boston. Up to 1888, eleven trust companies had been chartered, in each case by special act of the legislature, and by that date most of them had opened commercial banking departments in addition to the more specialized business for which they were created.
In 1888 legislation was enacted establishing and making uniform the conditions under which safe deposit and trust
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BANK CONSOLIDATIONS
companies might be organized. These laws contained gen- eral provisions for trust companies to act as trustees under wills. In 1899, supplementary legislation permitted trust companies to act as executors under wills. In 1908, after a prolonged dispute, trust companies were permitted to add sav- ings departments and receive savings deposits substantially on the same basis as the savings banks.
By the end of 1889, Massachusetts had a total of 256 na- tional banks and 12 trust companies, with a total capital of $101,667,000 and deposits of $199,366,000. About that time Boston, with a population of 400,000, had sixty national banks with a capital of $53,300,000; whereas New York City, with a population of 1,500,000, had only forty-five national banks with a combined capital of $48,330,000. Evidently Boston banking capital was more plentiful than was war- ranted. This pointed toward the absorptions and consolida- tions that were to occur within the next ten years.
Few were the failures of national banks. The largest and most disastrous of this period was that of the Maverick Na- tional Bank, with a capital of $400,000 and total assets of $10,218,000 (1891). The first failure of a trust company was the Suffolk, with a capital of $100,000 and total assets of $316,000. Originally formed to negotiate and guarantee mortgage loans on western farms, the transference of its business to other lines of activity proved disastrous.
In the panic of 1893, all Boston banks suffered, but less severely than in 1837, 1857 and 1873. While upwards of two hundred banks, chiefly in the West and South, failed at this time, the banks of Massachusetts all came through successfully.
BANK CONSOLIDATIONS (1898-1908)
The results of this period of strain were no doubt a contrib- uting factor leading to the series of consolidations that took place, beginning a few years later. In 1898, fourteen con- solidations took place in Boston alone among the national banks, the first in the trust-company field occurring in 1904. A number of the consolidations were accompanied by liquidation or reductions of capital, so that in 1905 the capital of the 28 national banks in Boston was $28,400,000, reduced from
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$53,850,000 for 60 banks in 1894. Deposits rose in that period from about $170,000,000 to $223,827,477. The trust companies in Boston during this same period gained in num- ber from eleven to nineteen, with gains in capital, surplus and deposits.
By 1907, the banks throughout the State were in a stronger condition than ever. During the currency panic of 1907, when a number of New York banks were forced to suspend, the Massachusetts banks came through in excellent shape. Bank stocks had begun to return to favor as investments. While in 1898 the average dividend on $49,650,000 of capital was 2.3 per cent, in 1905 the average dividend on $28,400,000 of capital was 6.35 per cent.
In the consolidations referred to above, the lead was taken by the National Shawmut Bank, which was founded in 1836 as the Warren Bank, shortly becoming the Shawmut Bank, and later the Shawmut National. In 1898 it became the Na- tional Shawmut, and in that year absorbed nine other national banks-the Columbian, Eagle, North, Hamilton, Market, North America, Howard, Revere and Boston; all originally founded as State banks. In 1901 it absorbed the National Bank of the Commonwealth and the Third National Bank. It then represented the consolidation of twelve former Na- tional Banks and was carrying on business with a capital of $3,500,000, compared with a total capitalization of $13,050,- 000 of the former Banks before their consolidation.
The National Shawmut later absorbed four other National Banks-National Exchange in 1906, the National Bank of Republic in 1908, the Eliot National in 1912, and the Citizens National in 1927. These consolidations, with additions made to its capital and surplus through subscription by stockholders, brought it at the close of 1929 to a capital of $20,000,000, surplus and undivided profits of $12,559,246, and deposits of $183,231,165.
Another consolidation of the same period centered around the First National Bank. About 1898 the Massachusetts Na- tional Bank, founded in 1784 as the Massachusetts Bank and the oldest bank in the State, suffered from a serious loss of confidence with the failures of the Globe and Broadway Na- tional Banks. John W. Weeks, later Congressman and Senator
From a photograph by Henry Havelock Pierce
Courtesy of Sinclair Weeks
JOHN W. WEEKS
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FEDERAL RESERVE SYSTEM
from Massachusetts, and still later Secretary of War in the Cabinets of Presidents Harding and Coolidge, assumed the presidency in 1900 and began building up its deposits. In 1903 a consolidation was effected with the First National Bank of Boston, founded in 1859 as the Safety Fund Bank. In 1904 the National Bank of Redemption was acquired; this had pre- viously acquired the Shoe & Leather National, which earlier had acquired the Everett National and Blackstone National. Thus, the First National Bank of Boston, representing at that time the consolidation of six former National Banks, was do- ing business with a capital of $2,000,000 compared with the former capital of the merged institutions totalling $5,200,000. Its growth will be referred to later.
There were also consolidations among the Boston banks. and consolidations from time to time in other cities of the Commonwealth, one of these being the merger in 1906 of five banks in Springfield under the name of The Union Trust Company.
FEDERAL RESERVE SYSTEM (1914-1930)
The passage of the Federal Reserve Act in 1914 strength- ened the entire banking system through the concentration of bank reserves, the rediscounting of commercial paper, the providing of an elastic currency, and through open market operations. The Reserve Banking System has become a na- tion-wide clearing house for check collections, collection of notes, drafts, etc., and for wire transfer of funds; and is also the fiscal agency of the Federal Government itself.
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