in current expenses, but largely of late to erect public buildings, purchase forest lands, improve roads, and construct canals.  The minor divisions are counties, cities, villages, boroughs, towns, townships, school districts, drainage, irrigation, and levee districts, fire districts, poor-relief districts, road districts, and various other subdivisions of states and of counties.  Every one of them has more or less legal power to incur debts and to levy taxes for the purpose of paying the interest and of repaying the principal.  The purposes for which the debts are incurred by specially organized districts are sometimes indicated in the names (e.g., drainage, irrigation), while the regular political divisions of counties, cities, villages, towns, townships, incur debts for a large variety of objects, such as streets, sewage disposal, water supply, electric light or gas plants, school houses, libraries, and other public buildings.  Large expenditures for these purposes are necessary because the local governments are undertaking new functions, and either existing equipment (such as waterworks systems, and street railways) must be bought from private companies or new ones must be built.  They are necessary further because the rapid growth of population calls for an immediate “capital investment,” the payment of which may be, through borrowing, more easily spread over a series of years (e.g., in the extension of streets and paving, and in the provision of school houses for the children).

Sec. 7. #Nonrevenue character of receipts from loans.# The proceeds from loans (and certain other items of sales) are called nonrevenue receipts, because they are but in anticipation of receipts from other sources.  The economic theory of such loans is essentially the same as that of private loans, but it is the people of the political district collectively that are the borrowers.  To get the present uses of goods they sell their promise to make future payments totaling a larger amount.  The loan is the present worth of those promises.  In the case of loans made for local purposes, provision is now usually made for their complete repayment within a definite number of years, usually 10, or 20, or 30.  Meantime interest is payable annually or semi-annually, and from some source an additional sum is collected to repay a part of the loan, sometimes by redeeming a certain part annually, sometimes by accumulating a sinking fund until that amounts to the whole debt.

The minor divisions in the United States are thus constantly creating debts at the rate of about $2,000,000,000 each year and at the same time paying former debts in instalments, in a total amount somewhat less than this.  In the case of some municipal investments which are commercial enterprises (such as those supplying gas, electricity, and water), these annual payments can be made out of the profits; in the case of others, the payments come from special assessments upon the owners; and in most other cases they are collected by the usual methods of taxation.  In America, a large part of these costs are, by the law of special assessments, placed upon the owners of adjacent lands, whose outlays are usually more than offset by the increased value of their lands as a result of the improvements.  In this case also, the present investment is in anticipation of the future incomes which the owners of the improved lands will get.[3]