The most liberal interpretation of which these constitutional provisions are susceptible, however, would not have ensured complete municipal self-government. Unless a city is given adequate financial powers, a constitutional grant of the right of local self-government does not enable it to exercise much choice in relation to the more important matters of municipal policy. By narrowly limiting the powers of cities in this direction, they have been largely deprived of the advantages which they would have enjoyed under a consistent application of the home-rule principle. A certain amount of freedom in the use of the taxing power would seem to be no less essential to the city than to the state itself. Within reasonable limits it ought to be conceded the right to formulate its own scheme of taxation. In every important American city the taxes collected for municipal purposes greatly exceed those imposed for the support of the county and state government. In a matter which so vitally concerns the city it ought to have some right to pursue a policy of its own. This right has not been recognized, however, even in the constitutions which have made most concessions to the principle of municipal home rule. By this means all innovations or reforms in municipal taxation except such as may be authorized by the state itself are effectually prevented. It could not, for instance, exempt personal property from taxation, or make a tax on ground rent the main source of its revenue.
The power to incur debt for municipal purposes is no less essential than the power to tax. The present-day city must spend large sums in making public improvements the cost of which it is necessary to distribute over a period of years. To limit too narrowly the borrowing power of cities for these purposes would prevent them from realizing the full benefits of unhampered self-government. This does not imply that a city should own and operate all industries of a quasi-public character, but it does imply that it should have the unquestioned right and the power to do so. Unless this is the case it is not in a position to secure the most favorable terms from such private corporations as may be allowed to occupy this field. Unreasonable restrictions upon the borrowing power of cities by placing obstacles in the way of municipal ownership of public utilities tend to deprive the people of the most effective safeguard against the extortion of private monopolies.
The limitation placed upon the amount of municipal indebtedness has not had altogether the effect intended. This is mainly due to the fact that the debt limit fixed in the state constitutions was in many cases so low that it did not permit cities to make absolutely necessary public improvements, such as the paving of streets and construction of sewers. To make these improvements without resorting to credit would require the owners of the property affected to advance the full amount of their cost. This would in many instances be extremely inconvenient. Accordingly, an effort was made to find some method of evading these restrictions which would be upheld by the courts. This was accomplished by issuing bonds to be paid out of a special fund which was to be created by taxes assessed against the property of the district charged with the cost of the improvements. The courts held that this was merely a lien upon the property of the district in question, and not a municipal debt within the meaning of the above-mentioned constitutional limitations. These decisions by the courts may not appear to be in harmony with the letter of the constitutional provisions relating to municipal indebtedness, but they are hardly at variance with their spirit. The object of these restrictions was not so much to limit the rights of the property-owning classes as to protect them against the extravagance of the propertyless voters. To make an exception in favor of municipal indebtedness incurred in this way and for these purposes was not calculated to work any hardship upon property owners, but rather to give them the power to authorize the employment of credit for their own advantage. They were protected against the abuse of this particular kind of indebtedness inasmuch as the consent of the owners of a majority of the property affected was quite generally required.
One influence which helped to mold a public sentiment in favor of constitutional provisions limiting the amount of municipal indebtedness was the rapid increase in the debts of American cities during the period that immediately followed the Civil war. For this condition of affairs the state government itself was largely to blame. It had prescribed a form of municipal organization which was scarcely compatible with an efficient and responsible management of financial matters. Moreover, the state government, as we have seen, could empower its own agents to borrow money for a purpose which it had authorized and obligate the city to pay it. The effort to correct these evils, first noticeable about the year 1870, took the form of constitutional provisions limiting the amount of indebtedness which could be incurred by or on behalf of cities. The main object of these provisions was to protect municipal taxpayers against an extravagant use of the borrowing power for local purposes, whether exercised by state or municipal authorities.
Another advantage which these provisions seemed likely to secure to the capital-owning class deserves at least a passing mention. This policy of limiting the amount of municipal indebtedness was adopted at a time when, owing to the rapid growth of urban population, the local monopolies of water, light, transportation, etc., were becoming an important and extremely profitable field for the investment of private capital. The restrictions imposed upon the power of cities to borrow money would retard, if not preclude, the adoption of a policy of municipal ownership and thus enable the private capitalist to retain exclusive possession of this important class of industries.
That the constitutional restrictions upon the general indebtedness of cities have retarded the movement toward municipal ownership is beyond question. It is not likely, however, that they will much longer block the way to municipal acquisition of those industries in which private management has proven unsatisfactory, since it may be possible to evade them by resorting to the device of a special fund. The same line of argument which has been accepted by the courts as supporting the constitutionality of the special fund for local improvement purposes is no less applicable to special debts incurred for the purchase of revenue-producing public utilities, such as water works, lighting plants and street railways. Under this arrangement, however, the city must not assume any responsibility for the payment of the capital borrowed, the creditors advancing the purchase price or cost of construction, looking solely to the earnings under municipal operation for the payment of both principal and interest. It may be doubted whether the courts in permitting cities to employ the special fund in relation to local improvements realized its possibilities in the direction of municipal ownership.[165]
These restrictions upon the powers of cities indicate a fear that too much local self-government might jeopardize the interests of the propertied classes. This attitude on the part of those who have framed and interpreted our state constitutions is merely an expression of that distrust of majority rule which is, as we have seen, the distinguishing feature of the American system of government. It is in the cities that the non-possessing classes are numerically strongest and the inequality in the distribution of wealth most pronounced. This largely explains the reluctance of the state to allow cities a free hand in the management of local affairs. A municipal government responsive to public opinion might be too much inclined to make the public interests a pretext for disregarding property rights. State control of cities, then, may be regarded as a means of protecting the local minority against the local majority. Every attempt to reform this system must encounter the opposition of the property-owning class, which is one of the chief reasons why all efforts to establish municipal self-government have thus far largely failed.
We thus see that while property qualifications for the suffrage have disappeared, the influence of property still survives. In many ways and for many purposes property is directly or indirectly recognized in the organization and administration of municipal government. The movement toward democracy has had less influence upon property qualifications for the suffrage and for office-holding in its relation to municipal than in its relation to state and national affairs. When the Federal Constitution was adopted the property qualifications for voting and office-holding in force in the various states were not disturbed. The Constitution did not recognize the principle of universal suffrage. It not only allowed the states to retain the power to prescribe the qualifications of voters in state and municipal elections, but also limited the suffrage for Federal purposes to those who were qualified to vote at state elections.[166] The removal, during the first half of the nineteenth century, of property qualifications for voting at state elections and holding state offices had the effect of placing the Federal suffrage upon a popular basis.
The influence of the democratic movement was less marked, however, in the domain of municipal affairs. Here the old system under which voting and office-holding were regarded as the exclusive right of the property-owning class has not entirely disappeared. In this as in other respects the American state has evinced a fear of municipal democracy. It is true that in the choice of public officials the principle of manhood suffrage prevails. But the suffrage may be exercised either with reference to candidates or measures; and in voting upon questions of municipal policy, which is far more important than the right to select administrative officers, the suffrage is often restricted to taxpayers or the owners of real estate. Thus in Colorado, which has gone as far as any state in the Union in the direction of municipal democracy, no franchise can be granted to a private corporation or debt incurred by a city for the purpose of municipal ownership without the approval of the taxpaying electors. When we consider that 72 per cent. of the families living in Denver in the year 1900 occupied rented houses,[167] and that the household goods of a head of a family to the value of two hundred dollars are exempt from taxation,[168] the effect of this restriction is obvious. In thus limiting the right to vote, the framers of the state constitution evidently proceeded upon the theory that the policy of a city with reference to its public utilities should be controlled by its taxpayers. The justification for this constitutional provision is not apparent, however, inasmuch as the burden of supporting the public service industries of a city is not borne by the taxpayers as such, but by the people generally. Such a system makes it possible for the taxpaying class to control public utilities in their own interest and to the disadvantage of the general public. The part of the community who are taxpayers, if given the exclusive right to control these industries, would be tempted to make them an important source of municipal revenue. They would be likely to favor high rather than low or reasonable charges for these necessary public services, since their taxes would be diminished by the amount thus taken from the non-taxpayers through excessive charges. Where the majority of the citizens are property owners and taxpayers there is but little danger that public ownership will be subject to this abuse. But where there is great inequality in the distribution of wealth and a large propertyless class, democracy is the only guarantee that the benefits of municipal ownership will not be monopolized by the property-owning class.
An investigation of the practical working of municipal ownership in American cities will show that this danger is not purely imaginary. In the year 1899 53.73 per cent. of the waterworks in this country were owned and operated by municipalities, public ownership being the rule in the larger cities. Taking the thirteen largest plants in the United States, all of which were municipally owned, the income from private users was $20,545,409, while the total cost of production, including estimated depreciation, aggregated only $11,469,732. If to this amount be added the estimated taxes, interest on total investment and rental value of the municipally owned quarters occupied for this purpose, the total cost of production would be $22,827,825. Private consumers, however, used only 80.2 per cent. of the water supplied. If the 19.8 per cent. supplied free for public purposes had been paid for at the same rate charged to private users, the total income from these 13 municipally owned plants would have been $25,817,720. This would have been $2,989,895 in excess of a fair return upon the total investment. No one would claim that the price of water has been increased under municipal ownership. As a matter of fact, it has been substantially reduced and the quality of the water at the same time improved. The reduction in price, however, has been less than it would have been, had the interests of the consumers alone been considered. If the object of municipal ownership is to supply pure water at the lowest possible price to the general public, there is no good reason why the city should demand a profit on the capital it has invested in the business. This would certainly be true where the earnings under municipal ownership have been sufficient to pay for the plant. In this case it would be an injustice to consumers to make them contribute, over and above the cost of operating the plant, an additional amount sufficient to pay interest on the investment, inasmuch as they have supplied the capital with which the business is carried on. Any attempt to make municipal ownership a source of revenue would mean the taxation of water consumers for the benefit of property owners. Nor is there any reason why the private consumers of water should be made to pay for the water used for public purposes. The water needed for public buildings, for cleaning streets and for extinguishing fires ought to be paid for by those chiefly benefited—the property-owning class.