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151. F E D E R A L R E S E R V E B O A R D WASHINGTON February 9, 1915. My dear Governor:The following questions have been referred to this office by the Board for an opinion: (1) Under Regulation F-I-(c)-3> does the term "taxable property” include franchises where such franchises are actually taxed upon the valuation set forth in the city’s return of taxable property? (2) . Under Section 14 of the Federal Reserve Act, sub-section (b) where the Federal reserve bank . is authorized to "buy and sell *,* *.bills, notes, revenue bonds and warrants with a maturity from date of purchase of not exceeding six months", does this language permit the purchase of bonds having long maturities but which are acquired by a Federal reserve bank within six months of the date of matur ity and, if so, under what circumstances may such purchases be made? In answer to question (l), Regulation F reads in part as follows: "I. A Federal Reserve Bank may purchase such warrants as are issued by a municipality (c) 3, Whose net funded indebtedness does not exceed ten per centum of the valuation of its taxa ble property, to be ascertained by the last preced ing valuation of property for the assessment of taxes", This provision is not contained in but is a matter of regulation and the language strued is accordingly that of the Board and it its discretion to determine whether or not the able property" shall include franchises. the statute to be con is within term "tax The courts have generally construed a franchise to be property subject to taxation and so giving the lang uage "taxable property" its ordinary interpretation it would seem clear that franchises which are actually taxed and which are included in the city's return of taxable property should be taken into consideration in determining the net funded indebtedness as provided in Regulation F« In the case1 of The 7/est River Bridge Company vs» Dix "et al, 6 How. (U. 8. ) 507-553, the Court said "A franchise is property, and nothing more; it is incorporeal property, and is so defined by Justice Blackstone, when treating, in his second volume, chap. 3, page 20, of the Rights of Things", In the case of Society for Savings vs. Coite, 6 Wall (U. S.)i 594-606, the Court holds that the fran chise of a private corporation is a legitimate subject of taxation. This doctrine is affirmed in the case of Provi dent Institution vs. Massachusetts, 6 Wall (U. S.) 611-625 and again in the case of Hamilton Company vs. Massachusetts 6 Wall. (U. S.) 652f638. | In answer!to the second inquiry submitted, the Act provides that "revenue bonds......with a maturity from date of purchase of not exceeding six months" may be pur chased. The provision that such bonds must mature within six months from thej"date of purchase" clearly indicates that Congress contemplated that such bonds might have a maturity of longer than six months at the date of issue. It is true that the term "revenue bonds" is some times construed to refer to short-term bonds or warrants issued by municipalities to defray expenses for a short period prior to the collection of taxes. The word "revenue", however, does not of itself limit the term of a bond to that of a fixed maximum matur ity but instead refers to the character or nature of the bond rather than to the time of its maturity. In other words, giving the language its ordinary interpretation, it would seem merely to indicate bonds of any maturity, payment of which is guaranteed out of the collection of taxes or assured revenues. C. S. H. No. 3. The Act specifically provides that such bonds must be issued in anticipation of the collection of taxes or assured revenues but does not prescribe how long in ad vance of collection of such taxes the bonds may be issued. The provisions of the Act would seem to be complied with 1 if 9 at the time of issue, provision is made for the estab lishment of a redemption or sinking fund which will be sufficient and available for the payment of the bonds at maturity and are, therefore, self-liquidating at the expira tion of six months. It is, of course, understood that all other pro visions of Regulation UFU, Series 1915, must be complied with before such bonds may be purchased. In this connection, I beg to call attention to Paragraph VI, Regulation “P11, which is as follows: “Opinibn of recognized counsel on municipal is sues or of the regularly appointed counsel of the municipality as to the legality of the issue shall be secured and approved in each case by counsel for the Federal reserve bank.” The Board has ruled that where such opinions have been procured and approved by counsel for a Federal reserve bank, any other Federal reserve bank shall be deemed to have complied with the requirement of this para graph if it secures certified copy of such opinion and approval. In order to avoid duplication of work I would, therefore, respectfully suggest that where such opinions have been procured and approved by counsel for a Federal reserve bank copy should be filed with the Federal Re serve Board so as to be available for other counsel who are called upon to pass upon the legality of the same issues. Respectfully, (Signed) M. C. ELLIOTT Counsel. Hon. Charles S. Hamlin, Governor. http://fraser.stlouisfed.org/ 2/13/15 Federal Reserve Bank of St. Louis
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