HIGHWAY BONDS. 25 



with money borrowed at 5 per cent for 15 years and retired by a 

 sinking fund ; there would result the following annual expense to the 

 taxpayers for each mile for 15 years: Interest on $8,000 at 5 per cent, 

 $400; annual sinking fund to retire $8,000 in 15 years, at 3 J per cent 

 interest compounded semiannually, $413.66; 1 cost of annual mainte- 

 nance, $125; annual cost of periodic 2 resurfacing, $400 — making a 

 total annual cost of $1,338.66. By the annuity bond plan, the 

 expenses would be: Annual repayments of interest and principal, 3 

 $770.74; cost of annual maintenance, $125; annual cost of periodic 2 

 resurfacing, $400 — making a total annual cost of $1,295.74. 



At the end of 15 years the interest and redemption charges cease, 

 and if resurfacing is carried out as planned the surface is but two 

 years old and the community has a property the permanent value 

 of which represents at least 62 per cent of the original cost, or $4,960, 

 exclusive of the surface, and an accumulation of $800 toward resurfac- 

 ing. If the road is to continue in its original form, the annual charge 

 for repairs and maintenance will probably increase because of increased 

 traffic. If the annual payment of principal is reduced by extending 

 the period of the loan, there is danger that a new loan will be necessary 

 for more expensive construction to meet the increasing traffic before 

 the original loan is retired. Moreover, the decrease in annual pay- 

 ments of interest and principal is not inversely as the increase in the 

 period of the loan. A 30-year 5 per cent annuity bond would require 

 an annual payment of $520.41 per mile on the $8,000 macadam road 

 above cited. (See Table 36 and PL III, fig. 1.) 



If the same method of estimating the annual cost is used for each 

 type of road considered, the relative total cost of the various types 

 may be computed fairly and without confusion. If a highway were 

 built from cash in the public treasury it would theoretically still be 

 necessary to include in the annual cost of such a highway the interest 

 on the first cost of construction at a rate which the municipality or 

 county could obtain by investment of its funds. The question of how 

 long such interest should run has never been determined. 4 



In estimating the total cost of a highway for a series of years the 

 cost of repair and maintenance is the item most frequently neglected. 5 

 The cost of the sinking fund or the charge for bond redemption is also 

 sometimes forgotten. There are now outstanding bonds for highway 

 construction where no provision has been made to retire them, 

 although the bonds have been issued for a definite term. 



i Use Table 6, p. IS. 



2 At intervals of 6.5 years, at §2,600 per mile, or 29.5 cents per square yard for a 15-foot road; no allowance 

 of interest is made; for discussion of this point, see p. 13. 



3 See Table 36, Appendix D. 



* Theoretically interest would run until improved road had paid for itself by saving to community. 

 ■' In one county of Virginia, after public highways had been constructed from the proceeds of a bond 

 issue, the county established tollgates upon the highways in order to raise revenue for their maintenance. 



