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FE D E R A L



R ES ER V E

BANK

OF

RICHMOND

JUNE

1966

STATE
AND
LOCAL
GOVERNMENT
DEBT

NEW STATE AND LOCAL GOVERNMENT
BONDS BY MAJOR PURPOSE, 1965

PART 1
In contrast to the Federal debt, which receives
much publicity, the growth of state and local govern­
ment debt has gone largely unnoticed by the general
public. In m id-1965, state and local government
debt outstanding totaled almost $98 billion, having
increased about 10% annually since 1950. W hile the
Federal debt was over three times as large, totaling
$317 billion, it had grown only about 1.4% each
year during this period. This article, the first of
two dealing with state and local government financ­
ing, will concentrate on the general characteristics of
borrowing by these governments, while the second
will discuss marketing techniques.
The tremendous increase in the financial needs of
state and local governments is one of the most strik­
ing features of our postwar economy. Their need
for funds has derived from the rapid growth in
population, the increased percentage of our popula­
tion which is either old or young, the trend toward
urbanization, and the rising level of prosperity. These
changes have increased the need for schools, better
roads, utilities, and water and sewer systems.
Such governmental functions as education, some
types of welfare, roads, public health, police protec­
tion, hospitals, and sanitation have been primarily
the responsibilities of state and local governments.
T o finance the large volume of capital expenditures
needed for these functions, states and localities, for
several reasons, traditionally have resorted to bor­
rowing by selling securities. First, many projects
are too expensive to be financed out of current
revenue receipts; some proj ects may cost more than
a locality’s total annual operating budget. Even for

2



wealthy state or local governments, financing ex­
pensive construction might entail a prohibitive in­
crease in taxes. Secondly, the life of a capital asset
is long, and many people will benefit from it who do
not at present live in the community. In view of to­
day’s highly mobile population, it seems inequitable
that the total burden of financing a public improve­
ment should fall on those people who happen to live
in the area at the time the improvement is made.
Generally, about one half to three fourths of all
state and local government capital expenditures are
financed by borrowing, and about 90% of all new
long-term debt is for capital construction. The dis­
tribution of the $11.1 billion borrowed by state and
local governments in 1965 is shown in the pie chart.
The largest category, “ other,” includes such items
as dormitories, stadiums, and community swimming
pools. About 95% of the total debt outstanding is
long-term because the bonds are usually, although
sometimes very loosely, tied to the life of the capital
asset they are financing, or to an estimate of the
revenue to be derived from it. Borrowing is also
used to provide veterans’ bonuses and benefits, and,
on rare occasions, to finance current operating ex­
penditures on a short-term basis.
Dimensions

T otal state and local debt outstand­

ing has increased from about $2 billion at the turn
of the century to almost $98 billion in 1965.

O f the

$98 billion, state debt accounted for 27% and the
rest was owed by the various types of local govern­
ments, such as cities, counties, townships, school dis­
tricts and special districts.

In this century, growth

in total state and local debt has been interrupted only
twice, during the 1930’s and the second W orld W ar.
W ith the conclusion of the W ar, states and localities
increased their borrowing very rapidly. From 1946
to 1964, state debt grew at a rate of 14.3% per year,
and local governments, 9.3% . Am ong the principal
types of local governments, city debt increased 7.6%
annually; school districts, 1 9 % ; and special dis­
tricts, 9.7% .
Tax Exempt Feature T h e most distinctive fea­
ture of state and local government bonds is the
exemption of their interest from all Federal income
taxes. (M any bonds are also exempt from state in­
come taxes in the state of issue.) The Federal exemp­
tion is both constitutional and statutory, and is based
on the doctrine of “ reciprocal immunity.” This
doctrine grew out of the United States Supreme
Court’s ruling in McCullough v. Maryland (18 19 ), in
which Chief Justice Marshall said “ the power to tax
involves the power to destroy.” In accordance with
this doctrine, state governments may not tax income
earned on instrumentalities of the Federal Govern­
ment, and vice versa. In 1895 the Supreme Court
ruled specifically, for the first time, that a Federal
income tax could not apply to the interest on state
and municipal bonds. Since the ratification of the
Sixteenth Amendment in 1913, which permitted the
establishment of a Federal income tax, each income
tax law has exempted such interest from Federal
taxation. Over the years, the tax immunity has been
extended to political subdivisions of states and other
public agencies, including interstate authorities.
The tax exempt feature became increasingly at­
tractive during W orld W ar II when the Federal
Government ceased to issue its own tax exempt se­
curities, and Federal income tax rates were raised
sharply. The rising level of prosperity and increas­
ing number of people in the upper income brackets
have further enhanced the investment appeal of state
and local bonds since interest received from them is
virtually the only form of income which is not subject
to Federal income taxation. Although the tax exempt
feature has been attacked repeatedly by finance ex­
perts and Treasury officials, attempts to abolish it
by the Treasury have failed due to strong opposition
by states and localities, dealers, and underwriters.
Types of Tax Exempt Bonds
T h e principal
question with most state and local governments to­
day is not whether to borrow, but how to borrow.
For a number of years, state and local governments
relied primarily on the issuance of general obligation
bonds; that is, bonds which were backed by the full
faith and credit of the issuing government, and all



the taxing powers and revenue raising devices of
that government stood behind them. The existence
of a multitude of restrictions on state and local gov­
ernment borrowing through general obligations has
resulted in the creation of a variety of borrowing
techniques which circumvent the restrictions, and
which have altered substantially the character and
composition of tax exempt debt in the past two
decades. In 1952, about 82% of total long-term
state and local debt issues were general obligations,
but by 1964 the proportion had fallen to about 60% .
The type of debt which has increased so rapidly
is the “ nonguaranteed” bond, dependent, in theory,
for interest and principal payments on revenue pro­
duced by an income-earning asset or enterprise, but,
in practice, often dependent on earmarked taxes,
pledged public charges and rents, or grants from the
general revenue pool. Because nonguaranteed, or
“ revenue” bonds, as they are commonly called, do
not carry an unconditional promise to pay, as do all
general obligations, they have been held by the courts
not to be general obligations in the constitutional
sense, and hence not subject to state constitutional
limitations.
History of Debt Restrictions

In the 1820’s and

most of the 1830’s the country was generally pros­
perous and many states borrowed money to finance
internal improvements such as canals, highways, and
railways.

Many of

the improvements were

un­

profitable and, as a result of the depression of 1837,
nine states defaulted, and four eventually repudiated

COMPONENTS OF LONG-TERM LOCAL DEBT
AS A PER CENT OF THE TOTAL OUTSTANDING
Per Cent

60

Source:

U. S. Departm ent of Com m erce, Bureau of the
Census.

3

their debt. Although most states later resumed in­
terest payments, many state constitutions framed at
that time included restrictions on borrowing. The
Civil W ar brought a new wave of borrowing, and
while northern states were able to retire most of
their debt with Federal help, the South was burdened
by the financial mismanagement of reconstruction
governments. The South’s Civil W ar debt was de­
clared null and void by the Fourteenth Amendment,
and post-reconstruction governments subsequently
repudiated or scaled down most of the reconstruction
debt.
Due to bitter experience and conservative
philosophy, voters in many states endorsed severe
constitutional and statutory limitations during the
last two decades of the nineteenth century.
A s state borrowing dwindled following the war,
localities assumed the task of financing capital im­
provements and borrowed extensively, particularly
for railroads. By 1873, however, many localities
found themselves unable to service their debt and
defaults became widespread, amounting to about 20%
of the debt outstanding in 1880. A t this time states
imposed restrictions on local borrowing, usually in
the form of a debt-property value ratio. Although
the accelerated borrowing of the 1920’s was followed
by defaults in the early 1930’s, amounting to about
10% of all local bonds, there was no fresh wave of
limitations and restrictions. Instead, steps were taken
in many areas toward state supervision or control of
the finances of defaulting local units.
Types of Debt Restrictions

The types of state

limitations on their own borrowing fall into three
categories.

First, are those with constitutions which

prohibit any borrowing except by amendment.
Digitized for 4
FRASER


This

group numbers 21 states. Second, and also including
21 states, are those which may not borrow without
a legislative act and approval in a referendum. Third,
and including only 8 states, are those in which there
are no constitutional limitations on borrowing. A s
for state constitutional or statutory limitations on
local borrowing, the most common is a ceiling on the
debt expressed as a per cent of the local property
tax base; in 1961 this restriction was included in
34 state constitutions. Although many students of
municipal finance regard the debt-property ratio as
the most workable formula yet devised, it has many
serious drawbacks. For instance, the limits apply to
the assessed value of property, and can therefore be
altered simply by altering the assessment. Also, as­
sessments often vary widely within a state. The
debt-carrying capacity of local governments is not
necessarily measured accurately by the property value
alone because localities use additional sources of
revenue and where one community may depend very
heavily on property taxes, another may derive sig­
nificant revenues from other sources. Finally, lo ­
calities are tempted to expand their legal borrowing
power by creating special governmental districts
which may share the same property base, thus piling
districts and debts on top of each other.
Aside from the debt-property ratio, restrictions on
local debt are varied and numerous. In 1961, ref­
erendum requirements appeared in 23 constitutions;
another 27 states had statutory referendum require­
ments. Other types of regulation include limits on
the term for which local governments may borrow,
maximum interest rates which may be paid, specifi­
cations for the type of obligations to be used, and the
conditions for issuance.

Methods of Circumventing Debt Limitations
Where state and local governments have been un­
successful in obtaining legislative modification or
constitutional changes of limitations on general obli­
gation bonds, they have most commonly resorted to
the nonguaranteed bond. Nonguaranteed bonds were
originally used sparingly, and then only to finance
self-supporting enterprises such as public utilities and
toll facilities. During the Depression, however, the
Public W orks Administration greatly expanded their
use to stimulate state and local construction without
interference by debt restrictions. The number of
states using them jumped from 15 in 1931 to 40 in
1936; nonguaranteed debt is now used in all states.
The types of financing via nonguaranteed bonds
have developed piecemeal, according to whether they
received sanctions or rebuffs from the courts. There
are currently three broad categories of nonguaranteed
borrowing methods: (1 ) bonds of state agencies or
localities serviced by means of special funds; (2 )
special districts and public authorities, corporations,
and commissions; and (3 ) lease-purchase agreements.
The first method is self-explanatory— certain public
receipts, such as earmarked taxes, are set aside to
service bonds in order to avoid classifying the bonds
as general obligations.
A special district is a governmental unit typically
devoted to one or two functions such as education
or water and sewer facilities. The unit usually
operates in a fairly small area, and may have its own
taxing and borrowing powers. Special districts are
a convenient way of avoiding jurisdictional problems
which arise when cities spread into counties, or
towns grow into each other. Although school dis­
tricts are the most numerous type of special district,
they are usually considered in a separate category
because their use is so widespread and because their
entire debt is full faith and credit. In contrast,
82% of the total debt of all other special districts
in 1964 was nonguaranteed— the highest percent­

leased to the state government or political subdi­
vision. The bonds are serviced and retired out of
lease payments made by the leasing governmental
unit. Some provision is usually made for the pur­
chase of the facility by the lessee when the lease ex­
pires. Although the lease payments depend on the
general revenues of the leasing unit, most state courts
have held that neither the payments nor the bonds
violate debt limitations. School construction is often
accomplished in this manner, as well as highways,
hospitals, parks, and athletic fields.
Perhaps the most controversial use of lease-financing is for industrial aid. About 28 states have au­
thorized the issuance of revenue bonds to acquire
land, buildings, and equipment which, in turn,
are leased to a private firm. The rental paid by the
firm is supposed to cover the servicing of the debt.
The purpose of this type of financing is to attract
industry and thereby bolster the area’s economic wrellbeing. Objections to industrial aid bonds include
the follow in g: (1 ) the tax exempt feature is ex­
ploited for private purposes; (2 ) firms receiving aid
may derive cost advantages over other competing
firm s; and (3 ) firms may be induced to shift to a
new location where market factors may be other­
wise unfavorable.

A method which is frequently used by state and

Disadvantages of Nonguaranteed Debt One of
the strongest arguments for the revision or abolition
of limitations on state and local debt is the increasing
use of nonguaranteed debt. First, nonguaranteed
borrowing involves higher interest costs because the
lender supposedly assumes a greater risk than if the
full revenue-raising powers of the government w7
ere
pledged to secure the bond. In cases where the
state or local government intends to assume the
burden of nonguaranteed debt, but where it is un­
able to declare publicly this intention because of con­
stitutional restrictions, the higher cost is payment for
a fictitious risk and represents an unnecessary cost
to the taxpayer. Nonguaranteed borrowing also in­
volves more litigation than guaranteed borrowing, due
to the need to convince the courts that the debt is
not subject to constitutional or statutory limits. This
is also costly to the taxpayer. Another criticism of
the present use of nonguaranteed obligations is that
they are used increasingly and extensively for p ro j­
ects which produce little or no revenue of their own.

local governments to expedite capital construction

Although these governments are not liable for this

is lease-financing.

debt, a modest volume of defaults could impair all

age of any type of local government.

During the

past decade there has been a trend toward the crea­
tion of authorities, where possible, instead of special
districts.

Authorities have borrowing power, but

usually no taxing powers, and are established for
most of the same reasons as special districts.

This involves, first, a state law

permitting the formation of a public, nonprofit cor­

state and local credit.

poration or authority which is empowered to issue

stitutional and statutory restrictions have not suc­

revenue bonds. W ith the proceeds from the bonds,
the corporation builds the facility which is then

ceeded in restraining borrowing, but have simply




In sum, it appears that con­

altered its character.

5

"iyigt
g»g:

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O ld G eorgetow n in the D istrict oColum bia is an outstanding exam ple

~~j

of the charm of the past em bodied in thriving residential area.

Betw een

1890 and 1920, as W a sh in g to n expancj^ m any historic structures were de­
molished.

M an y fam ilies, how ever, nintained fine residences there and by

-/the 1920 s new fam ilies began to resto old houses.

Instead of becom ing a

section of restored buildings open fc>r jblic inspection, it has attracted new
residents w hose nam es m ake headlin in the new s today.
In 1751 G eorgetow n w as offic’i j 1 u5
ytere d as a “ to w n e” by the M a r y ­
l a n d A ssem b ly .
Georgetown University is the oldest Catholic institution of higher learning in
the United States. It was founded in 1789, the same year in which George
W ashington was inaugurated President. Georgetown was the first American
;*
college to receive a University Charter from the Federal Government. This
<^JkCharter was granted in 1815. The University’s H ealy T ow er is a feature
of the W ashington skyline.

It becam e a great t<acco market and carried on a lively

i

com m erce with the W e s t Indies and ngland, rivaling the ports of P hila­
delphia and N e w Y o r k .

In

1871 G rgetow n ’s charter w as revoked b y 'i T

C ongress, thus ending its self-goveri ent and m aking it an integral part
- o f the city of W a sh in g to n .

H
W h e n apartm ent-house construction threatened to engulf
G eorgetow n in 1924, the citizens obtained a zoning ruling w hich
stated th at: “ N o building shall be erected for an apartm ent . . .
or a hotel, nor shall any existing buildings be enlarged . . . f o *
those purposes.”

Entire streets of single fam ily houses have

been saved by this ruling.

A re-zon in g in the late 1940’ s r e - _

Fine A rts for recom m endations.

i

The Old Stone H ouse on M Street is one
Dumbarton Oaks, built in 1800, once was occupied by ;
of the oldest buildings in W ashington surJohn C. Calhoun.
In 1940 the extensively altered,
Iviving in its original condition. I t is a n "
estate was presented to Harvard University a s aj
historically important representative of
center for Byzantine and early Christian studies. T h e?
colonial Georgetown and was saved fro m . . Dumbarton Oaks Conference, a step in the organ izademolition in 1950 by an A ct of Congress.----- jtion of the United Nations, was held here in 1944.

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this section of the nation s capital.
A

-t-rt- C oK H U J iortL v ^ r

-C a. p t

good time to visit G eorgetow n is late A pril or M a y ,?.

also be easier, since streets are narrow and often on e-w ay or

G e orge to w n ” in

dead end.

'M Y
tJL p*#U gac,*.? Pctzi^■homas & z.all * of-Gzo^jsz.
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roKK-zsTJoHff■7MK.ZLKr.LJ>.
Pc.TJE.K. Casavayz.
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mohaj- Twjrzt.$ A*>.l
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T h e only authentically furnished house and g a r d e n /

1950, within which all plans for new and rem odeling construc­

open to the public all year is D um barton H o u se, headquarters

tion and dem olition m ust be subm itted to T h e C om m ission of

of the National Society of Colonial D am es.

_________ 1

1
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l a a E g g a

FA LLS

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STREET

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E xp lorin g G eorgetow n on foot not only

and W isco n sin A venue.

Jtznr

jv m z. 0 - t f s i -

p h o m c i

KiJfUK. Jo«* YcCDMA*t ■

Ill

w hen you can join the G eorgetow n H o u se T ou r or the G eorge­
tow n Garden T our.

A .r r o j^ r z v

Lj s z t e & i L j j l k r l y

offers a better opportunity to absorb the atm osphere, but m ay

creating an historic district know n as “ O ld

—

T h e citizens of G eorgetow n

hope that this law will help preserve the unique atm osphere of

stricted m ost shops and com m ercial establishm ents to M Street
Congress, in addition, passed a law

^

11
70

1117'
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COLLECTOR of CUSTOM.^
JAHZJ HAGCVSWf LtMtAf fflO 4-3tA tZ
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GEORGE TOWN




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in the Fifth District. They have made it possible for
manufacturing firms to attract workers from wider
geographical areas, to obtain materials more easily,
and to deliver finished products sooner. In the past
several years, numerous firms have been willing to
establish plants in predominantly rural sections of the
District because there were no longer serious trans­
portation problems connected with these locations.
Producers of farm products also have benefited.
The typical farmer enjoys an expanded range of
marketing alternatives, because he now can move
tobacco, cotton, grain, and other crops over long
distances promptly and conveniently.
Improved roads have been a spur to competition
in the retail trade sector. Most residents of small
towns in the District now have the option of shopping
in several other communities without having to drive

5™ DISTRICT HIGHWAYS

TOTAL SURFACED ROAD AND STREET MILEAGE
In the Fifth District—1950 and 1964

A traveler today can easily drive the 180 miles
from Washington, D. C., to the North Carolina State
Line in three and one-half hours. Dual-lane divided
highway is available for the entire distance across the
state of Virginia. It is possible, therefore, to main­
tain a steady and reasonably high rate of speed and.
normally, to avoid serious traffic congestion. It is
not necessary to drive through the streets of any city
along the way. There are four toll booths on the
turnpike between Richmond and Petersburg, but
there are no stop lights. Ten years ago, before the
Richmond-Petersburg Turnpike and Virginia’s part
of Interstate Route 95 were completed, the same trip
was less pleasant and often took as much as one and
one-half hours longer, due in large measure to the
necessity of driving into and through the cities of
Fredericksburg, Richmond, and Petersburg.
The foregoing, of course, is just one example of
the benefit from expansion and improvement of the
highway system in Fifth District states in recent
years. Numerous others can be cited. People in
all parts of the District have gained from better roads.
The vacationing North Carolina family finds it
easier to reach beach and mountain resort areas.
The salesman in Maryland finds it takes less time to
go from customer to customer. Improved truck de­
livery service has enabled merchants throughout the
District to obtain additional stock faster.
Roads and the Economy Better roads have been
an important stimulus to the growth of manufacturing

8


Increase

M ileage
1950
District of Colum bia

1964

1950-1964

987

1,231

244

M aryland

15,326

23,045

7,719

North Caro lina

43,428

72,973

29,545

South C aro lin a

18,486

35,023

16,537

V irginia

46,900

57,158

10,258

W est V irgin ia

18,754

24,184

5,430

143,881

213,614

69,733

Fifth
Source:

District

U. S. Departm ent of Com m erce, Bureau of Public Roads.

more than an hour or two. In a number of the urban
areas, beltways have made it reasonably convenient
for shoppers to pursue bargains to the other side of
the city. Thus, merchants in both small towns and
cities have found that they are competing with more
rivals over a wider geographical area. The end re­
sults of increased competition of this type normally
are lower prices and wider selections of products
for consumers.
One of the most significant long-run effects has
been upon the quality of primary and secondary edu­
cation in rural areas. A s dirt roads have been paved,
it has been possible to consolidate rural schools.
Consolidation has meant greatly improved physical
facilities, has made it feasible for the schools to hire
teachers for specialized subjects, and in general, has
facilitated an up-grading in the quality of education.
The Measure and Cost of Progress T h e five
Fifth District states and the District of Columbia

collectively added about 70,000 miles of surfaced
roads to the existing road network between 1950 and
1964. This was an increase of almost 50% . A s may
be seen in the table on page 8, North Carolina led the
District in number of miles of surfaced road com ­
pleted during that period. In percentage terms, how­
ever, progress was greatest in South Carolina where
surfaced mileage almost doubled.
Concurrent with the gain in number of surfaced
miles, there has been improvement in the quality of
the roads. M ore mileage is surfaced with better
grade materials; most roads are wider and generally
conform to higher engineering standards. Many inter­
sections of major roads have been redesigned to
handle larger traffic volumes and access to most of
the heavily traveled roads is now closely controlled.
Probably the most readily evident qualitative pro­
gress has been the increase in mileage of multi-lane
(four lanes or more) highways. As recently as 1956,
there were only about 1,900 miles of multi-lane road
in the District. In 1964, the total was 4,100. Am ong
the five states, North Carolina added the largest num­
ber of new miles.
Building a better road system has called for con­

tinuing high level expenditures. Between 1956 and
1963 alone, Federal, state, and local government
spending for the construction of new highways in
the Fifth District amounted to over $4 billion. The
eight-year outlay was largest in Virginia, totaling
$1.2 billion. For the rest of the District the figures
were:
Maryland, $939 million; North Carolina,
$841 million; South Carolina, $453 million; W est
Virginia, $432 million; and Washington, D. C., $216
million. A n up-grading of maintenance standards,
also a part of the development program, has called
for increased annual spending for maintenance in
each of the five states.
Cost of construction and maintenance have risen
steadily in recent years. Average figures for the en­
tire District show the cost of building one mile of
new highway rising from $81,000 in 1956 to $354,000
in 1963. Similarly, maintenance cost per mile of
road in existence rose from $666 to $872. The un­
usually rapid increase in construction costs per mile
has been due to higher prices of materials and equip­
ment, rising labor costs, and higher construction
standards necessitated by growing traffice volumes.
Most of the revenue for highway needs has come

THE INTERSTATE AND DEFENSE HIGHWAY SYSTEM
In The Fifth District-March 31, 1966

jj
_______

To tal
D e sig n a te d

O p e n to
T ra ffic

W o rk in
P ro g re ss

Not Y e t
in P ro g re ss

,0fl j
/

Ha0e?O n \ ^ £ ?C
w

2 9 .8

10.3

Washington

3 5 4 .2

2 5 1 .4

5 .4

, fc
M a ry la n d

Baltimore

Strosburg-j

(m iles)
District of C o lu m b ia

^

14.1

u'i

*

Stountonj

''
8 3 .6

19.2

^L«,in^on V . j R « m ,
o«
N ewport
N ew s

N orth C a r o lin a

7 7 0 .3

3 9 1 .6

3 5 9 .5

19.2

South C a r o lin a

6 8 1 .0

3 4 6 .2

3 3 4 .8

... .

1,059.1

5 0 4 .6

53 1 .8

2 2 .7

5 1 7 .7

18 6 .7

14 9 .9

181.1

3 ,4 1 2 .1

1 ,6 9 0 .8

1 ,4 6 5 .0

2 5 6 .3

V irg in ia

W est V irg in ia

Fifth District

O p e n to T ra ffic
So urce:

U. S. D e p artm en t of C o m m e rce , B u re a u of P ublic R o ad s.




M a jo r Toll R o ad s
W o rk in P rogress
Not in P ro gress

9

from taxes on users. Receipts from user taxes col­
lected by Federal, state, and local governments in
the five states and D. C. have more than doubled in
the past decade and have become a larger part of
total highway revenues. In 1963, they amounted to
$814 million, or 81% of total receipts, compared with
$393 million or 67% in 1956.
The amount appropriated from general funds also
has risen substantially.
The dollar total almost
doubled between 1956 and 1963. A s a fraction of
total highway revenues, however, such funds have
remained of relatively minor importance. N or have
any of the states depended heavily upon debt fi­
nancing. For the District, bond proceeds in 1963
were only $48 million or about 5% of the total.
The Interstate System O ne of the m ost prom is­
ing developments in U. S. highway transportation
since the end of W orld W ar II has been the begin­
ning of the National System of Interstate and Defense
Highways. Although the system was authorized by
the Federal-Aid Highway A ct of 1944, there was no
substantial appropriation of Federal funds for con­
struction until 1956. Thus, the large-scale building
program has been going on for about 10 years. In
the entire country, approximately 21,450 miles of in­
terstate highway are now open to traffic. W hen the
system is completed in the early 1970’s, a total of
41,000 miles of highest quality road will connect the
nation’s major urban and manufacturing centers.
All of the mileage making up the interstate system
is multi-lane, divided roadway, conforming to top
design standards. Perhaps the major advantage of
highways of this quality is reduction of accident risk.
Federal officials have estimated that, nationwide, the
completed system will bring about an annual saving
of 8,000 lives that would otherwise have been lost.
The Fifth District’s share of the completed inter­
state network will be a little more than 3,400 miles.
A s may be seen in the table at the bottom of page 9,
about half of the designated mileage is now open.
Maryland is well ahead of the District average in
total mileage completed, while the District of Col­
umbia and W est Virginia lag somewhat behind. Con­
struction of road meeting interstate standards is par­
ticularly difficult and expensive in W est Virginia
because of the mountainous terrain.
One short
stretch to be constructed in the northern part of the
state is expected to cost about $3 million per mile.
A s is evident from the map on page 9, a number
of the District’s urban areas are already linked by the
new highways. Interstate roads now connect Charles­
ton and Spartanburg in South Carolina, W instonSalem, Greensboro, and Durham in North Carolina,
Digitized for10
FRASER


Charleston and Beckley in W est Virginia, and Balti­
more, Maryland and Wilmington, Delaware.
Highway Use T h e builders of the D istrict’s h ig h ­
ways have been spurred in their efforts by ever­
growing traffic volumes. Between 1950 and 1964,
the total number of private automobiles registered in
the five state area increased from 3.1 million to over
5.8 million. Based on national averages for number
of miles driven annually per car, it may be estimated
that the number of vehicle miles driven annually by
Fifth District car owners rose from 28 billion to
56 billion.
Use of highways for the transport of goods also
has risen rapidly. In the nation as a whole, tonmiles of freight hauled between cities by motor car­
riers more than doubled in the 1950-1964 period, and
the fraction of all freight hauled which was hauled
by truck rose from 16% to 2 4% . Data for the In­
terstate Commerce Commission’s Middle Atlantic
and Southern regions suggest that the comparable
figures for District states rose at least as much as
these national averages.
One might expect that so much expansion of
traffic volumes would have created an increasingly
serious accident problem. But such has not been the
case. Whereas the number of vehicle miles traveled
annually in the District approximately doubled be­
tween 1950 and 1964, the number of deaths resulting
from motor vehicle accidents rose only one sixth.
This record is quite impressive in view of the ap­
preciable rise in the speed capabilities of most auto­
mobiles in the past five years or so. Better road
design apparently has been a major factor contribut­
ing to driving safety.
The Outlook T h e next decade should b ring sub­
stantial further progress in developing the District’s
transportation network. There will be heavy spend­
ing for roads. Many additional miles of multi-lane
highway already are scheduled. Probably, a large
amount of money will go for highway beautification,
in line with the Johnson Administration’s current
proposals. A t some point, however, it seems logical
to expect that the patterns of expenditure in the
several states must shift from concentration on the
building of more roads to the development of better
systems of public mass transit. If the average an­
nual rate of increase in number of cars which has
prevailed over the past ten years continues until 1975,
there will be close to 10 million cars in the District.
This would mean a serious congestion problem es­
pecially in the large urban areas. The solution would
seem to be provision of acceptable alternative modes
of transportation to complement better roads.

THE FIFTH DISTRICT
The automobile influences nearly every facet of
modern living. Production, distribution, and use of
motor vehicles generate large flows of income in all
parts of the country and contribute substantially to
the success of many different enterprises. Personal
expenditures suggest the magnitude of these income
flows. In 1964, consumers across the country spent
$21.7 billion on new cars, $14.0 billion on gasoline
and oil, $5.6 billion for services such as maintenance,
repairs, and parking, $3.4 billion for interest on auto­
mobile debt, $3.0 billion for tires, accessories, and
parts, $2.1 billion for insurance, and $0.4 billion for
tolls. These outlays, totaling $50.2 billion, repre­
sented one eighth of all personal expenditures, and
more billions were spent on highways, showrooms,
shops, service stations, and other related facilities.
Statistical Comparisons Passenger cars in use
in the Fifth District on July 1 last year numbered
5,629,300, about 8 % of the national total. The dis­
tribution within the District showed 1.5 million in
North Carolina, 1.3 million in Virginia, 1.1 million
in Maryland, 0.8 million in South Carolina, 0.6 mil­
lion in W est Virginia, and 0.3 million in the District
of Columbia. Relative to population there were
fewer cars in the Fifth District than in the rest of
the nation. The ratio of residents to passenger cars
was 3.2 in the District compared to 2.8 nationally and
ranged within the District from 2.7 in the District
of Columbia to 3.4 in Virginia.
Comparisons with other nations show that in mid1965 there were more cars in the Fifth District than
in all of Canada, more than in South America and
Africa combined, more than half again as many as
in all the countries of Asia including Japan. Only
three European countries, the United Kingdom, West
Germany, and France, had more passenger cars than
the Fifth District, and Russia had less than one mil­
lion, about 11% more than South Carolina.

Fifth District’s 3.2 ratio of population to passenger
cars, the figure was 3.7 in Canada, 6.0 in France,
6.4 in the United Kingdom, and 6.8 in W est Ger­
many. The lowest European rate for a major
country was 4.6 in Sweden. The lowest ratios out­
side of North America were 3.8 in New Zealand and
4.2 in Australia. Russia had 300 persons per pas­
senger car. Ratios in Asian countries ranged from
7.4 in oil-rich Kuwait, 32.2 in Israel, and 57.3 in
Japan to nearly 2,340 in Korea.
Compared to the United States most countries give
more emphasis to buses and trucks. In the United
States and the Fifth District in m id-1965, passenger
cars represented about 83% of all vehicles in opera­
tion. In Canada and the United Kingdom, the ratio
was only slightly lower. In W est Germany, how­
ever, it was considerably larger, 91% . Elsewhere in

Comparisons among regions that differ widely in
social, political, economic, and geographical charac­
teristics need a good deal of help from other sources
to support any extensive conclusions. They do, how­
ever, provide a general commentary on differences
in population mobility.



For comparison with the

11

RETAIL SALES
A U TO M O TIVE GRO UP
$ Bil.

$ Bil.
Fifth District

'63
Source:

'64

United States

'65

63

'64

'65

U. S. Departm ent of Com merce, Bureau of
the Census.

the world, ratios of passenger cars to total vehicles
were 70% in Africa, 60% in South America, 40%
in Asia, and 21% in the Soviet Union.
New Cars Set Records N ew cars sold in the Fifth
District in 1965 numbered 792,000, about 14% of
the total in operation at mid-year. Prior to the cur­
rent buying spree, the record year against which all
others were measured was 1955, when District sales
topped 536,000. The 1955 figure was exceeded in
the Fifth District in 1962 but not until 1963 in the
nation as a whole. District sales last year were up
4 8% from the 1955 level, and the District’s share
of national sales rose during the ten-year period from
7.5% to 8.5% . Particularly large increases occurred
in 1962, 1963, and in 1965 when gains ranged from
14% in Maryland to 18% in West Virginia. Relative
growth between 1955 and 1965 ranged from 19% in
W est Virginia to 63% in Maryland. Three states
accounted for nearly three fourths of the new cars
sold in the District last year: Virginia with 201,000,
Maryland with 193,000, and North Carolina with
191,000. T o compare recent growth with the old
records set in 1955, the chart on page 11 shows an­
nual sales from 1960 to 1965 in the nation and sub­
divisions of the Fifth District expressed as per­
centages of the 1955 volume. The national rate of
growth was exceeded during this period in all Dis­
trict states except W est Virginia.

12


Importance in Retail Sales A u tom otive sales,
which include used cars and accessories as well as
new cars, exceeded $5.6 billion in the Fifth District
in 1965 and accounted for nearly one fourth of all
retail sales. Automotive sales nationally totaled over
$56 billion, about one fifth of total retail volume. The
chart opposite compares District and national growth
in automotive retail sales during the past three years.
The unusual size of last year’s gains, a little over 12%
in the District and a little below that figure in the
nation, is clearly apparent. The Fifth District ac­
counted for 10% of national automotive sales com ­
pared to 8.5% of new car sales due largely to the
District’s relatively bigger used car business.
Other Factors N early one fourth o f all state tax
revenues are linked to the use of motor vehicles.
In the Fifth District the fraction has recently been
slightly more than one fourth with motor vehicle fuel
taxes in 1965 contributing $411 million, vehicle
licenses $144 million, and vehicle operators’ licenses
$11 million toward total state tax revenues of about
$2.2 billion. Am ong the five states, the proportions
of total tax revenues linked to the use of motor
vehicles were 33% in Virginia, 23% in W est V ir­
ginia, 24% in each of the Carolinas, and 21% in
Maryland.
Am ong the District states only Maryland and V ir­
ginia produce automobiles. Last year’s figures show
over 206,000 units assembled in Maryland and nearly
85,000 built in Virginia. The District total was
little more than 3% of the national output but made
a significant contribution to local income flows.
The number of franchised dealers in the District
declined from over 3,500 in 1955 to less than 3,000
in 1960, to about 2,750 early this year.

Competition

has resulted in fewer outlets covering larger areas
and handling more models and styles.

Although the

actual number of dealers declined, the District’s
share of the national total rose during the period
from 7.9% to 8.3% .
Note: Data cited in this article include the counties
of W est Virginia’s northern panhandle, part of the
Fourth Federal Reserve District. The charts and several
other references are based on data compiled by R. L.
Polk & Co., and further use is prohibited without Polk
permission.

PH O TO CREDITS
C over— North C aro lin a State H ig h w a y Com m ission. Pages
6 & 7 —G eorg etow n University N ew s Service; N atio nal Park
Service, U. S. Departm ent of the Interior; W ashington Board
of Trade. M ap—The N atio nal Society of C olo nial Dam es of
A m erica in the District of C olum bia.