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HIS is a financial tale of two went on to explain that, in the past, it cities written for the investor had apparently been deemed unnecessary in municipal bonds.

to maintain the sinking fund for which One of the cities is Atchison, provision had been specifically made; that

· Kans. Though among the “on account of a temporary stringency in ldest in the state, it has never been ambi- the money market" Atchison had not ious to become a metropolis. Its citizens been able to raise the necessary funds to ike to boast of the substantial character, meet the maturing debt; and that, thereather than of the rapidity, of the city's fore, the best the city could offer was new growth, both in population and in prop- bonds in exchange for the old, "with the irty values. Its population by the last same rate of interest that had satisfied for ensus report was about 16,500.

thirty years." This, the mayor thought, On July 1, 1883, Atchison issued ought to be acceptable to every one under $266,950 worth of bonds to pay off some the adverse circumstances. ld indebtedness. These bonds bore B ut he had reckoned without his host. nterest at the rate of 4 per cent. a A New York banking house, into whose rear, and were to run for thirty years. hands some of the bonds had fallen, lost \mong the provisions of their issuance no time in making it plain to the city was one which made it a duty of the city officials that new securities would not be officials to raise every year, by means of acceptable under the terms offered. It was axes, a sum of money large enough not pointed out that, though the 4 per cent. only to meet the interest on the bonds but interest might have been satisfactory for also to create a fund for the payment of many years after the bonds were issued, heir principal at maturity.

under present conditions investment Presumably, all the legal preliminaries funds were demanding and receiving a necessary to making an issue of this higher rate than that. In fact, it was sind were properly attended to. The declared flatly that new 4 per cent. Atchivonds were bought as an entire issue by son bonds were not worth par. bankers who, in turn, parcelled them out It should, perhaps, be explained that the n several smaller lots to investors. For fundamental difference between the kind vears they were forgotten, except as their of “refunding” proposed by the mayor owners were reminded twice every year of Atchison and the familiar kind so fre of the interest being “due and payable at quently resorted to by the great railroad the office of the City Treasurer at the City and industrial corporations lies in the of Atchison," or, perhaps, when they fact that the latter always offer to the occasionally passed from hand to hand in bondholder the alternative of receiving private business transactions. Had these cash payment if he is dissatisfied with the municipal bonds been true to family tra- terms of the new securities, even though lition, they would have ended naturally they may — in fact, practically always do 1 quiet and uneventful life -- held in high — bear a higher rate of interest. regard by investors — exactly at the end Two ways of solving Atchison's finanof three score years, and there would have cial problem were suggested. First, raisbeen no occasion to mention them here. ing the necessary funds by making an

But as July 1, 1913, drew near — the appeal to the civic pride of local bankers; day on which the holders of these Atchison second, fixing the rate of interest on the bonds expected to be able to turn in their new bonds at 5 per cent. and, perhaps, securities for money — something unusual providing for their early maturity. It happened. A notice was sent out by was recalled that the latter was the kind Atchison's mayor that the city couldn't of solution which the state of Tennesse: nay off the maturing bonds. The notice had sensibly and successfully applied to a

It should were not wori per cent. Atchi

similar problem not very long before. But responsibility in safeguarding outstanding the discovery was made that in Atchison's bonds. This might happen in almost case it would be necessary to apply to the any American city once in a while. The state legislature for authority to issue interesting thing for the holder of municbonds at a higher rate, and it was too late pal bonds is to know what guarantee be to take that action, because the legislature has against such actions. had adjourned. There seemed, moreover, the officials of Atchison were made by a to be insurmountable obstacles in the mandate of the highest court of their state way of resorting to the other suggested to see the error of their ways and it tock solution. So there was nothing left for less than three weeks. That is the imthe bondholders to do but to appeal to the portant point of the story. It will doubtKansas courts.

less turn out that the city's credit has been This was done, and within twenty-three saved. And the unique record for safety days after July 1st, the date on which pay- of municipal. bonds as a class — a record ment of the bonds should have been made, which has demonstrated their peculiar the Supreme Court of the state of Kansas fitness to be treated as the groundwork of declared that Atchison could not officially permanent investment — has been savas fix the amount of taxes for the citizens from an unseemly blemish. to pay for the running of the city during The other city is Fargo, N. D., one is the next few years unless it included taxes the same general class as Atchison, with to take up the defaulted bonds in annual about an equal number of inhabitants, and instalments, with 4 per centi interest added an equal amount of wealth in property

The effect of this Supreme Court deci- values. Its part in the tale is briefly tok sion was to bring about a radical change in as suggesting another element that enters the attitude of Atchison's officials and to in an important way into the security turn them back upon the second suggested municipal bonds. solution of their problem. Immediately Late in 1912 the mayor of Fargo made they communicated with the holders of the extraordinary announcement that the the old bonds, asking if, instead of receiving

city hadt diestared one directed to open

city had declared a dividend of 6 pe their payments in annual instalments, cent. At first no one seemed to underthey would not be willing to take in stand what was meant, but the explana exchange new twenty-year 5 per cent. tion was offered soon afterward that, durbonds, which would be provided with a ing the year, the city hád saved about sinking fund large enough to enable the $10,000, which it had been decided te city to retire them before maturity. refund to taxpayers in proportion to the.:

One response to this communication last assessments. This dividend was pas brought out the moral of Atchison's in cash a few months ago, and it stands as experience, which has been related here in an exceptional achievement in efficiency a good deal of detail because it is unique. and economy of city administration. In it the suggestion was made that in the It is, of course, not to be expected that light of all that had happened when the Fargo's example can be followed generall old bonds matured it could scarcely be by other cities under similar circumstances expected that investors would place entire But if the declaration of actual dividents confidence in the city's attitude toward to taxpayers does not become a part of the its financial obligations. More assurance routine proceedings of our "city fathers" on this point was needed to get people to there are plenty of other ways of putting accept new bonds, no matter how satis- economy and efficiency in evidence, and factory their general terms might be. thus giving additional investment prestix

Atchison was able to point to such things to the whole class of bonds that are backed as a low total and per capita debt, a high by taxes, the kind of "earnings" which market value of taxable property back of must be paid, as the Kansas Supreme its bonds, and a substantial amount of Court emphasized by the decision which assets owned. Yet a single administra- it rendered with such swift justice in the tion left room for doubt about its moral case of the Atchison bonds.

HE WONDERFUL RECORD OF THE FACTORY MUTUALS WHICH LOSE ONLY ONE

TWENTIETH OF ONE PER CENT. OF THE PROPERTY THEY INSURE

BY

FRANK WILLIAMS

Chemperature of twenest gale in and make no attemorquarter

Isa as the fire realls, it stoppeon and all prebate now a

LEVEN years ago the “big fire" Companies, with headquarters in Boston. broke out in the city of Pater. They make no attempt to secure business, son, N. J. A northwest gale in and any mill owner is eligible for mema temperature of twenty degrees bership if he complies with their strict

above zero pushed a wall of rules of fire prevention. They charge ame a thousand feet long more than approximately the same premiums that hree quarters of a mile. Six million other insurance companies do. But after ollars' worth of property burned up. they have paid the cost of doing business, ust as the fire reached the richest prizes of inspection, and the fire loss, they f all, the silk mills, it stopped.

return what is left to their members in The fire companies of Paterson and all proportion to the premiums paid. This he surrounding cities were already de- rebate now amounts to more than 90 Pated, the streets were full of frozen per cent. of the premium. ose, and people in the business and When the Mutuals were formed, the esidence districts just beyond the silk insurance rate on factories was “a dollar hills were only waiting for those somber a hundred.” The mill owner with a

uildings to light up as a signal to desert $100,000 property had to pay $1,000 a he city. But the silk mills remained year for fire insurance. By taking a lark. The fire did not reach them. few simple precautions the Mutuals were Che mills themselves, with their own fire- able at once to reduce the rate to 50 Jumps, finally beat off the attacking cents a hundred, and, now that they have onflagration when it had burned to made a science of fire prevention, they vithin fifty feet of them.

have a rate of only four and one half It was a miracle, but like most modern cents. That means that the insurance niracles it had a reason behind it. The on a $100,000 building is $45 a year. The eason the silk mills did not burn was insurer's premium on its face is far more hat they were insured in the Factory than this, but the rebate brings the net Mutuals, and they require preparation payment down to this insignificant sum. gainst every fire possibility.

Of course, the reason for this is that Most people will ask at once: What the mills insured, and therefore inspected, ure the Factory Mutuals?

by the Factory Mutuals very seldom have They are merely associations of mill fires. While almost all other kinds of wners who insure one another. They buildings are burning up faster than ever tre not run for profit. They are only before, the mills and foundries insured in o insure the mills and factories of their the Factory Mutuals are having only one nembers, but in doing that they have fire where they formerly had from fifteen ransformed buildings that at one time to thirty. The use of automatic sprinklers vere considered the worst fire risks into has in itself reduced the number of factory he safest kind of buildings in America, fires to one eighth, and the automatic o far as fire is concerned. They have sprinkler owes its existence to the Facproved again the old adage that an ounce tory Mutuals. Their experiments with of prevention is worth a pound of cure. Sprinkler systems over a long course of

There are nineteen Mutuals in all, years led to the invention of the automatic but for convenience they have formed sprinkler. In fact it was forced by them the Associated Mutual Fire Insurance on a reluctant public. All the mills of their members have been compelled systems in old buildings without cont to have automatic sprinklers for more than to the owners. All they ask is to a thirty years, and yet it is commonly paid the same rates the insurance cor regarded as a recent invention. As early panies have been receiving. The cost as 1887 one mill owner had installed in of installation is paid for in three a his plants automatic systems containing four years by the additional premiums. twenty-five hundred sprinkler heads. It It is on account of their tireless in was not until many years later that spections that the Factory Mutuals har builders in cities discovered the value been so successful. There were ninetee of this simple device. Meanwhile the of them in 1880, insuring two hundred Mutuals had experimented on hundreds million dollars' worth of property com of types of heads and placed their ap- monly considered extra hazardous. The proval on only six.

are still nineteen and they are now insurin The records of the transition period considerably more than two billion dollar when automatic sprinklers were being worth of the same kind of properti

They are all much stronger than the ever were and their business has increase more than ten-fold.

Compare this with other fire insuran concerns. Of the 105 fire insurance stod companies organized in New York aa doing business in the year 1871, the are only 20 left. Of the 71 that hav since been organized, only 24 are stil living. This leaves 44 of a total of 17 — exactly one fourth.

When an application for insurance made to one of the nineteen Mutua. a member of the board of inspecto

which acts for all of them, visits the plan 8 100 48 .29

06%2 .04.12 and makes a careful survey. To CUTTING THE COST OF MILL INSURANCE

survey, which is worked out in map f1

in considerable detail, he attaches a BEFORE THE MUTUALS WERE ORGANIZED THE RATE WAS A DOLLAR A HUNDRED; IMMEDIATELY of the changes necessary to bring it AFTER, IT FELL TO 48 CENTS; THEN (IN 1875) WHEN to the standard, which is now very ha THE AUTOMATIC SPRINKLER WAS INVENTED, TO 29 CENTS. THE AVERAGE RATE SINCE 1880 HAS BEEN

Enclosed stairways, elevators, and be 612 CENTS, AND IT IS NOW 472 CENTS

shafts, as well as automatic sprinkel

are required. As a result mill OWDE" installed in mills furnish a comparison when contemplating new structures, usua which proves their value. In the ten submit their plans first to the Mutte years between 1877 and 1887, mills for suggestion and approval. And w without sprinklers insured in one com- changes are necessary in old built pany had 759 fires, with a loss of $5,707,000, the difference in insurance rates is usua or $7,500 to the fire. In the same period sufficient to make it worth while. In there were 206 fires in mills outfitted owners of buildings were compellet 1 with automatic sprinklers with a total loss meet similarly stiff requirements in ord of $222,480, or $1,080 to the fire. Even to obtain insurance at all, so much a at that early date the automatic sprinkler would be exercised that the annual 11 reduced the fire loss to one seventh. loss would shrink to only a small parts

The proof was so plain that insur- what it is now. ance on “sprinklered risks” can now be Before the Mutuals were organized purchased cheaply everywhere. The saving fire in a mill usually meant a total by in rates is so great that brokers in many No one had taught the mill owners to cities are offering to install sprinkler enclosed stairways and shafts and

[graphic]

against fire Island founges, but the allow

simple changes in construction would re- quarters of a century there has not been duce the fire hazard. The president of an a single case of a Mutual failing to meet insurance company at that time remarked, its obligations and, except in earlier years in refusing to insure a cotton mill, that before there was time to perfect firehe would insure any cotton mill to burn preventing devices, no assessments have up, but that he would not issue a policy been levied. Some of the oldest assoagainst its burning at any rate of premium. ciations, like the Arkwright, of Boston, Woolen mills and paper mills were almost have never assessed their members. The as bad. But now the percentage of policy of the Mutuals has always been total losses to fires is less than one per to pay losses at once and without question. cent., and the cost of insurance is about Adjustments are easily made, because one twentieth of what it was.

both parties to the contract know exactly The first man to study fire prevention what the risk is. It has never been was Zachariah Allen, a cotton manu- necessary to take a case into court. facturer of Allendale, R. I. He was After the automatic sprinkler was inin a measure the Thomas Edison of his vented in 1875, the Mutuals entered upon day. He invented the automatic cut-off a period that has made the modern city valve for steam engines and built the possible. Seeing in this little device the first house furnace. He took the first solution of the fire problem twenty-five accurate measure of the water-flow over years before the rest of the world, they esNiagara Falls. When, in 1835, the rate tablished a laboratory for tests and aided on his cotton mill was raised on account materially in bringing about the quick and of the large number of cotton mill fires, safe sprinkler now in use. In fact, their he refused to pay the higher premium own members were so fearful of damage and set about making his mill proof from leakage that the association agreed against fire. Other cotton manufacturers to assume the damage from leakage, of Rhode Island followed his example and their policies contain a clause to and made similar changes, but the insur- that effect even now. ince companies refused to make allow For many years they have acted as inces for the dangers they had removed. one body except in the assumption of Mr. Allen then induced the others to join risk. After the inspectors have reportwith him in carrying their own insurance. ed on a mill, the various companies They formed the Manufacturers' Mutual decide what portion of the risk they are Fire Insurance Company of Providence, willing to assume. The caution with the first of the Factory Mutuals. which they proceed is shown in the large

A few years later the mill owners of staff of inspectors and engineers. They Lowell, Mass., found themselves in a do their work so carefully that only two similar predicament, and decided to in- adjusters are necessary for the whole sure one another. Their study of fire country. The inspectors follow one anprevention led to one of the most im other at uncertain intervals. Mill-owners portant of modern fire-fighting develop- never know when they are coming and, ments, the first of the high-pressure water if they wish to continue under a low rate systems. We owe that also to the Mutuals. of insurance, they know they must keep By careful construction, their high pres- their mills up to the mark. All firesure water system, and the quick use preventing and fire-fighting apparatus must of all new fire-preventing inventions, be in perfect order, there must be no the Lowell mills were able to reduce their accumulation of material likely to catch fire losses during a period of thirty-seven fire, and recommendations by inspectors years to an annual destruction from fire must be carried out promptly. If a of only one twentieth of one per cent. of mill-owner is reported lax or slow about the value of the mills.

carrying out the suggestions of inspectors The Mutual idea has grown steadily his policy is cancelled. The Associations during its entire history and has not met act on the assumption that there is no with a single set-back. During three excuse for disastrous fires. Many of the

one body exche insped

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