CORRESPONDKNCH 
 
 BhI Wl.hN 
 
 Hon. EDWARD M. GROUT. Comptroller 
 
 AND 
 
 WHEELER H. PECKHAM 
 
 WITH REFERENCE TO THE PLAN OF MR. STEPHENSON 
 FOR USE OF THE CITY SINKING FUND 
 
lEx HtbrtB 
 
 SEYMOUR DURST 
 
 When you leave, please leave this hook 
 
 Because it has been said 
 "Ever thing comes t' him who waits 
 
 87(cept a loaned book." 
 
 Avery Architectural and Fine Arts Library 
 Gift of Seymour B. Durst Old York Library 
 
DEPARTMENT OF FINANCE, 
 
 City of New York. 
 
 Edward M. Gkout, 
 
 Comptroller. 
 
 October 7, 1902. 
 
 Wheeler H. Peckiiam, Esq., 
 
 President, City Club, 
 19 West 84tli Street, City. 
 
 Bear Sir :—l take the liberty of inviting your at- 
 tention to the enclosed proposition concerning the Sink- 
 ing Funds of the City, and in behalf of the administra- 
 tion of the City, I would be pleased if you would write 
 me your views as to the advisability of the City adopt- 
 ing the plan suggested. We believe that the plan is 
 free from legal objections, and if adopted, it will relieve 
 taxation eight and one-half millions next year, and by 
 an increasing amount thereafter, without impairing, we 
 believe, the security of the bondholders. 
 
 Please regard this as strictly confidential, as it is de- 
 sirable to avoid public discussion while the plan is un 
 der consideration. If approved generally by those to 
 whom it is submitted, it will then be made public. 
 Very truly yours 
 
 (Signed) Edwaiu) M Grol^t, 
 Comptroller. 
 
2 
 
 October 9tii, 1902. 
 
 Edward M. Grout, Esq., 
 New York. 
 
 Dear Sir /—Yours of the 7tli instant received. You 
 say that you ' would be pleased if (you) I should write 
 you (your) my views as to the advisability of the City 
 adopting the plan suggested,' viz : the plan of Mr. 
 Stephenson as to use of the City sinking fund. 
 
 To my mind it seems but another of the numberless 
 eiforts of mankind to make fiat money or to avoid the 
 performance of contracts which owing to change of cir- 
 cumstances have become burdensome. 
 
 Let us see what the sinking fund is. It amounts to a 
 provision that to secure the payment of its bonds a cer- 
 tain sum shall be annually raised by taxation, and kept 
 and ultimately applied only to such payment. 
 
 In order that such sum so raised by taxation shall 
 not lie idle, the law permits it to be invested in City 
 bonds which thereby are practically paid, although as 
 mere bookkeeping they are kept alive until the payment 
 of the outstanding bonds for whose benefit the sinking 
 fund was established. 
 
 Now the provision and object of the sinking fund 
 are one of two things. 1. Either the raising by tax- 
 ation of a fund sufficient and more than sufficient to 
 pay the bonds for which it was raised, and holding that 
 fund as security for that purpose until the purpose has 
 been accomplished, or 
 
 2nd. In allowing its investment in the secured or 
 other City bonds to keep down the indebtedness of the 
 City of New York by raising by taxation a larger sum. 
 The value of the bonds is thus increased because of the 
 diminished obligations of the obligor the City. 
 
 The only other way in which the holder of a City 
 bond secured by the sinking fund could possibly benefit 
 
3 
 
 is that if he had the right to liave the bonds in the .sink- 
 ing fund sold lie inighi realize his pr(ji)ortion of the 
 proceeds and liold his own honds for tlie l)ahincH due. 
 Wiiether he has such right I have not examined and do 
 not know. Phiinly he could only get the face of his 
 own bond. 
 
 Tlie zeal gist of his security is his right to have the 
 stipulated sum raised every year by taxation. 
 
 Now what is the plan. First and dehnitely not to 
 raise by taxation the stipuhited sum. 
 
 Thar is a breach of contract. Mr. Stevens admits it. 
 But his plan is to issue more or uem l)ondsand have the 
 Sinking Fund Commissioners invest in them and in that 
 way to relieve the taxpayers so as not to raise the 
 amount by taxation. 
 
 Xow this interposition of tlie new bonds surely makes 
 no difference. 
 
 The indebtedness of tlin City is not decreased thereby 
 — on the contrary is increased and the stipulated sum is 
 not raised by taxation. 
 
 The effect is precisely the same as if without the issue 
 of new bonds the raising of money for the sinking fund 
 by taxation was omitted. 
 
 The issue of new bonds and putting them in the sink- 
 ing lund in no way satisfies the requirement of the law 
 which rightly construed says that with the money raised 
 by taxation jld outstanding bonds may be purchased 
 and tlie indebtedness of the (Jittj thus reduced. 
 
 The above objections api)ear more or less clearly in 
 your letter to the Mayor on ]mges 6 and 7 of the i)amph- 
 let you sent me. 
 
 On page 6 you say The net result to the taxpayer is 
 the same as if the whole fund were put upon this 
 basis," /. e., the basis of the later sinking funds wherein 
 only enough money to pay the debt when due was 
 
4 
 
 raised. You add : " The method it is true is circuitous^ 
 bat necessarily so." 
 
 Now if to do this thing directly would be illegal, can 
 it be supposed that any circuity effecting the same thing 
 would be legal ? 
 
 On page 7 you say " If a power to issue bonds the 
 proceeds of which should go to the General Fund for 
 the Reduction of Taxation were created broadly and 
 without limitation, then the plan would be objection- 
 able, for that would be borrowing to meet the annual 
 expenses." 
 
 But is not a "power to issue bonds the proceeds of 
 which should go to the General Fund for the Reduction 
 of Taxation " for the reduction of annual taxation for a 
 specific purpose provided for by the law equally object- 
 ionable as borrowing to meet annual expenses?" 
 
 On the same page, 7, you say, " It is thus not a power 
 to borrow on bonds iov annual maintenance^ — but only 
 a power to use annualy a certain excess in the Sinking 
 Fund applying it to its normal purpose and to give to 
 the fund in exchange the stipulated security." 
 
 But you don't give the stipulated security. The 
 stipulated security involved the raising of money hy 
 taxation and the purchase of existing bonds and the 
 diminishing of the indebtedness of the City. 
 
 Your plan in effect involves the raising of no money 
 by taxation, the piirc?iase of no bonds, but does involve 
 an increase of indebtedness by the issue of new bonds 
 and the placing of' such 7iew bonds in the sinking fund. 
 
 I think you will agree with me that if it had been 
 proposed to put such a feature in the original sinking 
 fund law, it would have been laughed to scorn by every 
 man capable of thinking on the subject. 
 
 Is it any less absurd now ? 
 
 This sinking fund law is a contract, which all agree 
 
must be sji(;redJy complied with. Can tliat now be a 
 eompliimce witli the contract, which if it liad oi'i^^inally 
 been proposed as the contract would have been out of 
 hand rejected ? 
 
 You say (p. 6) that holdin<; a {h,'btor\s obligation as 
 collateral is an absurdity. 
 
 It is an absolute and i)errect absurdity if such collat- 
 eral obli fixations are new and issued only for the pur- 
 pose ; but if such obligations are old and are paid off or 
 purchased by the debtor for a sinking fund, it is no ab- 
 surdity. It reduces the indebtedness of the obligor and 
 thereby increases the security of the creditor. 
 
 The sum of the situation I take to be this. 
 
 The security of the public creditor given by law has, 
 owing to the jjrosperity of tlie City, turned out to be 
 unnecessarily good ; and the question is, does that fur- 
 nish the City with a legal ground for breaking its con- 
 tract ? 
 
 It seems to me that there can be but one answer, and 
 that that must be the same whether the method be 
 direct or circuitous. 
 
 The proposed action seems to me quite on a i^ar with 
 repudiation, unless the creditor will reduce the rate of 
 interest because the market rate of interest has fallen. 
 
 This scheme w^ould reduce the security because it has 
 increased in value. 
 
 Neither can be done without the consent of the 
 creditor. 
 
 Suppose that we faced misfortune instead of pros- 
 perity, what w^ould be thought of the demand of the 
 creditor for increased security, there being no default 
 on the part of the City ? 
 
 In the varied relations of mankind uo one is of so 
 great importance as that of contract. Above all things 
 the public faith must remain untarnished even by the 
 smallest blemish. In this i)articular case, I think we 
 
6 
 
 should rather rejoice at the good fortune which has 
 given a surplus to this sinking fund than to try by any 
 other means than the consent of the City's creditors to 
 diminish the excess of their security. 
 
 It is fair to say that I write this letter without con- 
 sultation with any member of the City Club, or indeed 
 with anyone else. 
 
 Under the terms of your letter I did not feel free to 
 talk with anyone. 
 
 I imagine, however, that no one in the City Club will 
 dissent. 
 
 Yours truly, 
 (Signed; Wheeler H. Peckham. 
 
 DEPARTMENT OF FINANCE, 
 
 City of New Yohk. 
 
 Edward M. Grout, 
 
 Comptroller, 
 
 October 9, 1902. 
 
 Mr. Wheeler H. Peckham, 
 
 80 Broadway, 
 New York City. 
 
 Dear Sir. — I have yours of the 9th instant. I fear 
 that we have not succeeded, in the pamphlet sent you, 
 in making clear the facts of the situation. You define 
 the Sinking Fund as "a provision that to secure the 
 payment of the bonds a certain sum shall be annually 
 raised by taxation and kept and ultimately applied only 
 to such a payment," and it seems to me that your en- 
 tire discussion is based upon this definition. It is not 
 proposed to alter in any degree any of the sinking funds 
 
7 
 
 wliich fall witliiii tliis delinirion, but to leave tlinn in- 
 tact and in every respect just as you urge. 
 
 But if you will re-i-ead thr papers sent to you, you 
 will find that there are two Sinkiuii; Founds distinctly 
 not within this definition — the Sinkiuii; Fund for the 
 redemption of the City debt, known as the Sinking 
 Fund No. 1, and the sinking fund for tlie payment of 
 interest on the debt. These funds are not maintained 
 by an annual installment to be raised by taxation, but 
 are maintained by the p)ledge of all the revenues of the 
 City from water, docks, franchises, &c., and they now 
 yield an income which this year is eight and one-half 
 millions in excess of what the annual installment to be 
 raised by taxation and sufTicient at tlie end to })ay off 
 the debt, would be. The contract is that these revenues 
 shall go to the Sinking Fund and that the assets of the 
 Sinking Fund shall be invested in the securities of the 
 City. The proposition is to invest in General Fund 
 Bonds only so much of the revenues of these old Sink- 
 ing Funds as exceed what would be the annual install- 
 ment sufficient to pay off the principal. In other words, 
 the proposition is to put these Sinking Funds on prac- 
 tically the same basis as the Sinking Fund provided for 
 in the Constitution for water bonds, and the sinking 
 fund provided for in the present Charter for the debt 
 incurred by taxation. 
 
 If I have not made the facts clear to you in this letter, 
 or if they are not clear upon re-reading the pamphlet, I 
 will be very much obliged if I could arrange to see you 
 some time. 
 
 Yours very truly, 
 
 (Signed) Edward M. Grout, 
 
 Comptroller. 
 
8 
 
 October 10, 1902. 
 
 Hon Edward M. Grout, 
 
 Comptroller, etc., 
 
 Bear Sir. — I thank you for yours of the 9th instant 
 which corrects a misapprehension of mine. 
 
 The correction, however, to my mind only makes it 
 more clear that the conclusion I reached was sound. 
 
 Certain revenues are pledged to the sinking fund as a 
 security for certain bonds. 
 
 The meaning of that is that these revenues must be 
 collected kept and accumulated in the sinking fund at 
 least until the amount so collected shall be equal to the 
 amount principal and interest of the outstanding bonds 
 for which the sinking fund is security. 
 
 Now comes the investment clause. It is provided, I 
 understand, that this fund so collected and paid into 
 the sinking fund may be invested in City bonds. 
 
 Does that mean existing City bonds theretofore is- 
 sued for a valuable consideration or new City bonds is- 
 sued without consideration except that collections in 
 the sinking fund are paid for them (/. e. one City De- 
 partment pays another City Department one pocket 
 pays another pocket one hand pays the other) and such 
 collections are then used for general purposes and to 
 that extent lessen taxation ? 
 
 All the reasoning of my letter of the 9tli instant now 
 applies. 
 
 The contract to my mind can bear no construction 
 other than that these revenues shall be invested in ex- 
 isting securities, the purchase of which shall have the 
 effect of diminishing existing indebtedness and shall 
 not be applied to general purposes to the relief of taxa- 
 tion. 
 
 Your plan does apply these pledged revenues to 
 general purposes and to the relief of taxation and is 
 
9 
 
 not made a whit more valid by the fact that it does it 
 b\' a circuitous method. new l)onds to he issued 
 
 do not diminish but on the conlrary if ilicy have any 
 effect increase the in(h'l)t<Mlncss of tlie city. 
 
 They really have no effect. Tiiey do not increjise the 
 City indebtedness because wh^Mi the outstanding bonds 
 are paid the new bonds also are paid ; but they do not 
 decrease the indebtedness as the investment in or pur- 
 chase of old bonds w^ould decrease it. 
 
 You might just as well take this surplus direct from 
 the sinking fund and apply it to any general purpose. 
 The use of new bonds is mere form and effects notliiug 
 substantial. 
 
 If my views, thus expressed, seem to you not conclu- 
 sive, and you think that any benefit can be derived 
 from talking the matter over, I would be very glad to 
 see you either by yourself or with others and will be 
 happy to call on you at such time and place as you may 
 name, only premising that I generally now leave the 
 City by a 4 p. m. train. 
 
 Very truly yours, 
 (Signed) Wh?:eler H. Peckham. 
 
 DEPARTMENT OF FINANCE. 
 
 City of New York. 
 
 Edward M. Gkout, 
 
 Comptroller. 
 
 October 10, 1902. 
 
 Wheeler H. Peckham, Esq., 
 
 80 Broadway, 
 New York City. 
 
 Dear Sir. — I have yours of the lOtli instant, and I 
 trust that the subject interests you sufficiently to ex- 
 
10 
 
 case my pursuing it further. The provisions for the 
 investment of the Sinking Fund assets is found solely 
 in the City Ordinances, dating back, I think, to the 
 year 1844. The provision is that the Commissioners 
 shall invest the moneys, or so much as they can, ''in 
 the purchase of stocks created by the corporation of 
 the City of New York." Of course there are no longer 
 any stocks in existence which were issued prior to 1844, 
 and I do not think it has ever been suggested that the 
 investment was intended to be in securities existing at 
 any particular time. It has always been the uniform 
 practice of the Sinking Fund Commissioners to invest, 
 from time to time, in various securities freshly issued 
 by the Cit3^ I happen to have signed to-day several 
 certificates for small issues of new stock for various 
 purposes, issued directly by the City to the Sinking 
 Fund Commissioners, and there has not been a month 
 since I have been in office that I have not done the 
 same. In every case tiie security is issued for its par 
 value in money, and that would be the case with the 
 General Fund bonds which are proposed. The only 
 difference involved in the plan suggested is that a bond 
 shall be of a new class or kind, that is, Greneral Fund 
 bonds. In every other respect they will be exactly in 
 conformit}^ with what has been the constant practice. 
 
 Now taking up the reasoning of your first letter, 
 which is in effect that the scheme is a breach of con- 
 tract. May I nsk you ro look at Chapter 383 of the 
 Laws of 1878, in which alone will be found anything of 
 the nature of a contract on this subject. That act has 
 as its basis the ordinance of 1844 which pledged various 
 revenues to the sinking fund. The idea of a scientific 
 installment, whicli, collected annually and put on in- 
 terest, would produce the principal, seems not to have 
 been under consideration at that time (1844), and the 
 Sinking Fund was depended entirely upon the pledge 
 
11 
 
 of certain iweiiiit's which were then insii^nilicant in 
 amount as c()ini)ar(Ml with what tln'V ai'»^ to-day. One 
 may read within the lines of this law of 1S7S that tliese 
 revenues did not seem then to he sullicient security 
 for the debt.' The purpose of the hiw was evidently to 
 make the securities sufficient. The Law ])ledges to the 
 Sinkim;' Fund the revenues theretofore^ l)ledged and ap- 
 X)ropriated, as well as the surplus in the sister fund — 
 the fund for the payment of interest. At that time there 
 was a laro^e number of assessment bonds outstanding^, 
 chargers upon the Sinking Fund, which, it was evident, 
 would never be met by the assessments levied for them, 
 and the law added to the pledge of the revenues spoken 
 of, the receipts which might come from such assessments. 
 It then, in the fourth section, declared the "contrac- 
 tual relation " between the city and the creditors "un- 
 til all of such debt is fully redeemed and paid,'' and 
 not, as you suggest in yonr second letter, until the 
 amount of revenues collected should equal the principal 
 and interest of the outstanding bonds. If the provision 
 were as you have suggested, it would be equitable and 
 the burden of the Sinking Fund would be mu(;li less 
 oppressive. 
 
 But the purposes of the statute to make a sufficient in 
 the place of an insufficient provision is evident in the 
 seventh section of the act. which provides for the levy 
 of a tax whenever the revenues shall be insufficient, 
 adding that the amount so levied shall be not less than 
 one million dollars in any one year. Some years later 
 when it was found that the revenues were enough, and 
 more than enough, the city was relieved from the levy 
 of this one million dollars, and it never has been neces- 
 sary since to make a levy to supi)lement the revenues. 
 
 The substance of it all is that when this contractual 
 relation was created by the act of 1S78, it was under- 
 stood on all sides that the revenues were of <l()iibtful 
 
12 
 
 sufficiency, and that tlie purpose of the Legislature was 
 to insure them to the Sinking Fund and to supplement 
 them, but not the i^urpose to accumulate in the Sinking 
 Fund five or six times as much as would be required. 
 Yet the contract remains, and we do not propose, I 
 think, to violate it in the least. We mean that the 
 revenues should still go into the Sinking Fund no mat- 
 ter how great they may be, and that they shall still be 
 invested in the stock of the city, but the plan is to issue 
 the General Fund bonds only for the amount by which 
 the revenues exceed the requirements of the Sinking 
 Fund, reckoning them from now on, as provided, as I 
 have already stated, in the Constitution, in the new 
 Charter, and I may add, as provided in Section 8 of the 
 act of 1878, and thus to give present taxpayers the 
 benefit of the revenues which they are yearly creating 
 for the city from markets, docks, ferries, water system, 
 franchises, and the like. 
 
 After the Board of Estimate finishes with the Budget 
 work, which will be in a week or two, I would like very 
 much to talk over this matter with jou personally. 
 This plan has been examined by a number of lawyers 
 and financiers, and yours is the only adverse criticism 
 which it has met so far. I feel thoroughly convinced 
 of the soundness of the plan, yet I am open to convic- 
 tion upon the matter, and will^try to keep myself free 
 from any pride of opinion on it. 
 
 Yours very truly, 
 
 (Signed^ Edward M. Geout, 
 
 Comptroller. 
 
13 
 
 (Copy.) 
 
 October 13, 1902. 
 
 WnKKLER H. Pkcktiam, Esq.; 
 Pres. City Club, 
 
 19 West 341 h Street, City. 
 
 Dear Sir. — 1 have just received the enclosed letter 
 from Mr. Edgar J. Levey, formerly Deputy Comi)troller 
 and now President and General Manager of the Title 
 Insui-ance Company of New York, whose thorough 
 presentation of the Sinking Fund situation of the City 
 in Municipal Affairs for December, 19(K), will be remem- 
 bered by you. His approval of the i)hin suggested will 
 be of great weight with the City authorities, and I 
 thouglit it might be of interest to you in your owu con- 
 sideration of the question. 
 
 Yours very truly, 
 
 (Signed) Edward M. Grout, 
 
 Comptroller. 
 
 The Title Insukance Company 
 OF New York. 
 
 No. 149 Broadway, New York City, 
 
 October 11, 1902. 
 
 Hon. Edward M. Grout, Comptroller, No. 280 Broad- 
 way, New Y^ork City : 
 
 Dear Sir. — I acknowledge receipt of your letter of 
 the 7th inst., enclosing a printed copy of correspond- 
 ence between the Mayor, Deputy Comi)tr()ller Stevenson 
 and yourself in regard to a plan for relieving the tax- 
 payers from the present excessive burden borne by 
 
14 
 
 them for the debt service of the city on account of ex- 
 isting sinking fund provisions. I take pleasure in com- 
 plying with your request that I express my opinion 
 thereon. 
 
 The plan suggested by Mr. Stevenson and endorsed 
 by the Mayor and yourself is briefly to authorize the 
 annual issue of bonds to be known as General Fund 
 Bonds," to an amount equal to the difference between 
 the annual net revenues of the Sinking Fund, known as 
 "Redemption Fund, No. 1," and the amount which 
 would be required by that fund by scientific debt 
 amortization — such bonds to be purchased only by the 
 Commissioners of the Sinking Fund, and their proceeds 
 to be paid into the General Fund for the Reduction of 
 Taxation. I assume, though it is not expressly so 
 stated, that in conformity with existing provisions of 
 law, interest is to be paid on these bonds until their 
 maturity or earlier cancellation ; but upon their cancel- 
 lation, no payment of cash into the Sinking Fund is to 
 be made, provided at that time all the outstanding 
 bonds which are redeemable from said Sinking Fund 
 shall have been paid or a sufficient amount reserved in 
 cash for their payment. 
 
 The practical effect of this plan, so far as the burden 
 of taxation is concerned, is to place the Redemption 
 Fund, No. 1, upon a scientific debt-amortizing basis 
 and when this is accomplished, the whole debt service 
 of the city, with unimportant exceptions, will be 
 similarly established. 
 
 Under ordinary circumstances, as Mr. Stevenson 
 frankly admits, a proposition to issue long-term bonds 
 to provide for current expenses w^ould be indefensible, 
 but in the present instance the proposed "General 
 Fund Bonds" become only nominal additions to the 
 funded debt, and the object to be attained is to free the 
 city and the taxpayers from conditions quite as techni- 
 
15 
 
 cal and artificial as those under whicii these l)onds 
 would be issued. Tliese conditions, moreover, are so 
 acute, and involve so <i^reat a hardship ujjon i lie city, 
 that almost any device should be welcomed which would 
 end them. In fact, if the continued hea[)in<i^ up of un- 
 necessary Sinking Fund accumulations be not soon 
 modified the city's financial system will inevitably be- 
 come so hampered and end)arrassed as to affect seriously 
 its physical welfare and development. 
 
 So far as concerns the Iiolders of bonds issued under 
 the "contractual pledge" of 1878, there can arise no 
 cause of comi)laint possessing the slightest substance. 
 Tliey are absolutely assured of the ability of the Sink- 
 ing Fund to redeem their bonds and no reasonable man 
 should require more. The situation may be po[)ularly 
 summarized by the following analoii'y : A merchant, 
 Mr. Smith, wishing to retire, offers to sell his business 
 — tluitof a large departuient store— to one of his em- 
 ployees, Mr. Jones, who possesses great ability but 
 small capital. For the [)urchase price he takes back a 
 note payable in ten years' time, and binds Mr. Jones to 
 lay aside each year as a sinking fund the gross receipts 
 from his hardware department. At the time of the sale, 
 this hardware department is of only minor importance ; 
 the laying aside of its entire receipts would not crip[)le 
 the conduct of the business, and would, if continued on 
 the basis of past sales, produce enough in ten years to 
 pay off the debt. But soon after Mr. Jones's purchase 
 the character of the business changes. The hardware 
 department grows enormously and becomes its chief 
 feature, so that in four years the accumulated receipts 
 more than equal the entire debt. Mr. Jones offers to 
 pay Mr. Smith in full, but the latter decdines because he 
 is receiving six per cent, interest aud cannot make any 
 other investment which will be as satisfactory. Mr. 
 Jones then says to Mr. Smith : *' If you hold me to my 
 
16 
 
 contract to set aside beyond my reach and control the 
 entire receipts of my hardware department, my business 
 will be ruined, and I may even fail, because I will not 
 have sufficient capital to carry it on." Mr. Smith then 
 loolis upon the matter in a different light. He sees that 
 having too much security may be as bad as having too 
 little, if it affects the p)Ower of his debtor to make 
 money and remain solvent and successful. He there- 
 fore says to Mr. Jones : "If you will set aside and de- 
 posit in a trust company each year one-tentli of your 
 debt to me, so that at the end of the tenth year thare 
 will be sufficient on deposit to pay me in full, I will re- 
 lieve you of the necessity of setting aside the entire 
 gross receipts of your hardware department." 
 
 The City of New York finds itself practical y in the 
 situation of such a debtor to-day. When the ple lg-^ of 
 the city's direct revenues was originally m ide to the 
 Sinking Fund in 1844, there was not the slightest con- 
 ception of what their future magnitude would be. Now 
 that we do know what they are and can see clearly that 
 the city's Hnances are in a fair way to be strangled if 
 relief is not afforded, it would be sheer fatuity not to set 
 vigorously to work at a com. non sense readja^tmant of 
 the debt service. 
 
 Such a readjustment would be practically accom- 
 plished by the plan you advance. It is immaterial, so 
 far as concerns results, whether the surplus accumula- 
 tions of the Sinking Fund be directly applied under 
 legislative sanction to the reduction of taxation, as I 
 suggested two years ago, or whether the same en 1 be 
 accomplished indirectly through Mr. Stev -nson's plan. 
 I admire the ingenuity of the latter, which tights lire 
 with fire by adopting a f highly technical method 
 of avoiding an equally technical objection, whieh might 
 otherwise conceivably (though surely ili-advisedly) be 
 
17 
 
 raised by some boiidhoklei- under the coiitractural 
 pled^:e" of 1878. 
 
 There is one minor feature of tins plan to wliicli, 
 however, I would suggest an amendment. The invest- 
 ment in General Fund Bonds by the Sinking Fund 
 Commissioners of the exact amount of tlx^ annual sur- 
 plus is made mandatory. Might it not be better to 
 make this provision permissive only in terms? In 1904 
 and in 1907 and the two succeeding years, abnormally 
 large amounts of bonds redeemable from the Redemp- 
 tion Fund fall due. While the receipts of that fund in 
 each of these years might be sufficient to redeem these 
 bonds, it would require practically the whole of such 
 receipts, and scarcely any balance would be left for in- 
 vestment in those small authorizations of bonds which 
 it is inconvenient to include in public sales. Moreover, 
 the fact that most City bonds mature on dates not later 
 than November 1, would render it impossible to take 
 advantage of a whole year's Sinking Fund revenues. 
 It seems to me that this point, while of minor import- 
 ance, is worthy of consideration. 
 
 With the main purpose of your plan, however, I am 
 in the fullest accord and sympathy, and as one who 
 appreciates its importance to the welfare of the City, I 
 desire to express my thanks for the public service you 
 are performing. 
 
 Very truly yours, 
 
 Edgar J. Levey. 
 
18 
 
 (Copy.) Personal and Confidential. 
 
 Oct. 14, 1902. 
 
 Hon. Edward M. Grout, 
 
 Comptroller, etc. 
 
 Dear Sir. — Yours lOtli rec'd. 
 
 You say that it has always been the uniform practice 
 of the Sinking Fund Commissioners to invest from time 
 to time in various securities freshly issued by the City, 
 but has it ever been their practice to invest in any se- 
 curities not issued until issued to them for investment ? 
 
 The investment I think must have the effect to dim- 
 inish the debt. Your proposed plan does not. 
 
 In the cases to which yoa refer the bonds are issued 
 for a consideration and to purchase them diminishes 
 the debt. In your proposed plan they are issued for no 
 consideration. The City gets nothing and diverts its 
 sinking fund to general purposes to the relief of the 
 taxpayer. 
 
 You misunderstand my second letter. I did not 
 mean to suggest that the law required the sinking fund 
 to be accumulated only until it had become sufficient 
 to pay the bonds secured thereby, but merely that it 
 must be accumulated to at least that extent. If accu- 
 mulated to that extent another question might arise as 
 to whether it was necessary to accumulate further. 
 
 Y^ou say that I am the only one who has expressed an 
 opinion unfavorable to your plan. 
 
 Perhaps I am the only one to whom the point has 
 presented itself. 
 
 However, several to whom I have presented the ques- 
 tion as an abstraction have emphatically taken my view 
 of it. To me it seems so plain as to be hardly debate- 
 able and I can see no answer to the point that you are 
 
19 
 
 trying to do indirectly what you concede cannot be 
 done directly. 
 
 I need not say that I am always at your service. 
 
 Yours truly, 
 
 WlIEELEU H. PeCKIIAM, 
 
 I have carefully read Ch. 383, L. 1878. It seems 
 most emphatically to sustain may views. 
 
 (Copy.) Oct. 16, 1902. 
 
 Hon. Edward M. Grout, 
 
 Comptroller, &c. City Hall, 
 
 City. 
 
 My dear sir. 
 
 Thanks for yours of 13th inst., with enclosure of 
 printed copy of letter of 1 Itli inst. addressed to you by 
 Mr. Edgar J. Levey. 
 
 Mr. Levey's attention does not seem to have been 
 called to the point in issue. He certainly does not 
 treat it. 
 
 It is quite possible that the course you suggest might 
 be carried out without objection by bondholders or any 
 one ; because the City's credit is so good that no atten- 
 tion would be paid to it. 
 
 Nevertheless it is to me a perfectly plain violation of 
 the City's contract and one which if ever challenged 
 w^ould be restrained by the Courts. 
 
 Thanking you for your courtesy, I am 
 
 Yours truly. 
 
 Wheeler H. Peckham.