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rowed dollar and the extension would mean
we would pay 57 cents on every borrowed
dollar. In postponing paying through bor-
rowing the State does incur additional cost
in the form of higher interest charges.
Finally, I would like to speak briefly
about flexibility. I think, too, this is im-
portant but I get a different answer than
extension of the maturing length. The sig-
nificant factor to be observed in arranging
the term of the debt is the effect of the
debt on state finances. The existence of
debt lessens the state's freedom of action
in financial matters, it compels the state to
apportion a part of its current revenues in
a predetermined and fixed manner. It re-
duces the state's ability to meet new de-
mand and new emergencies. New condi-
tions may arise in which the State will
need all possible freedom of action to
change its disposition of its revenue.
THE CHAIRMAN: Your time has ex-
pired.
DELEGATE MENTZER: One more sen-
tence. The longer its debts run the longer
the State has to wait for such freedom and
in this sense a 25-year term gives far less
flexibility — the 15-year gives far greater
flexibility than a 25-year one and I am
glad to sponsor this amendment.
THE CHAIRMAN: Delegate Sherbow.
DELEGATE SHERBOW: I yield up to
seven minutes to Delegate Case.
THE CHAIRMAN: Delegate Case.
DELEGATE CASE: Mr. Chairman,
ladies and gentlemen of the Committee,
early in October when the matter of the
maturity of state bonds was before the
Committee on State Finance and Taxa-
tion, I wrote a letter to the editor of the
Baltimore Sun which was reprinted and
placed on every delegate's desk. That letter
stated the case for a maturity limit of state
bonds of up to 25 years. To refresh your
memory I would like to make to you to-
night the salient points I made in that
letter.
The case for 25-year maturity limit for
state bond indebtedness is as follows: First,
the maturity of state bonds should equate
to the life of the facility for which the
monies are borrowed to erect. As much as
I hate to disagree with my good friend,
Delegate Stern, it is incorrect that this
principle is applicable to revenue bonds
and not to general obligation bonds.
All the teachings and all of the lexicon
of financing states exactly to the contrary.
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This principle is applicable to general obli-
gation bonds. Quite to the contrary, the
maturity of revenue bonds is fixed not by
the length of the asset's life for which the
bonds are floated but rather based upon the
tolls that can be collected from the revenue
facilities. The case in point is the Kennedy
Expressway, a transaction in which I ap-
proved the bond issue of the State. There
we started by determining what the tolls
could be, what the traffic would bear. When
that figure was determined, we worked out
what length of maturity bond issue could
be sustained by that amount of tolls. So
just to the contrary of what Delegate
Stern has told you, in a revenue bond fi-
nancing- the length of the facility is based
upon the tolls you can collect from the
bridge or road or building you are erecting
and a general obligation bond issue the
length of time of the bond issue is equated
to the life of the facility.
The facilities for which these bonds are
to be issued in the future will last for at
least 25 years and, therefore, a 25-year
limit is the more practical time.
Secondly, a 25-year maturity limit would
attract a larger group of buyers for the
bonds. The testimony was clear and un-
equivocal before our Committee that the
longer the maturity the hotter the market
for the bonds. The reason for this is,
ladies and gentlemen, that there are a
number of buyers of municipal bonds who
will not buy 15-year bonds. Insurance com-
panies are a case in point. They will buy
25-year bond maturities; they do not want
15-year bond maturities. This means we
would have a large market for the bonds
and as Judge Sherbow has expressed since
the credit rating and interest rates are
based upon the market place, since the
market place is based on the law of supply
and demand the more demand you have the
better your bond issue.
Thirdly, the 25-year bond limit or ma-
turity limit would encourage more politi-
cal subdivisions to use the state aid which
is granted under certain programs we now
have in this State. The questions which
Delegate Marvin Smith raised are right at
point. Today there is one political sub-
division which because of the limit of
15 years on the state maturities has simply
not used one of the major programs in our
State, namely the program of financing
state schools.
Another political subdivision, the one
from which Delegate Mentzer and Delegate
Stern come, has only partially used this
program because of the restrictive feature
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