Industrial Cuba Part 15

By the end of this year the floating debt will be still greater, and the total obligations of the city at that time will probably be about $12,500,000.

[Ill.u.s.tration: HOUSE OF PARLIAMENT, HAVANA]

The mortgage for the loan of 1889 to the Spanish Bank is a doc.u.ment of 158 printed pages, including the index. It recites that in 1877 the city borrowed from the Spanish Bank a sum of money which, together with its interest, amounted in 1889 to $3,177,053.25; that the city was in arrears for interest and sinking fund, and that lawsuits have been in progress to compel the city to pay; that the city also desired funds for the completing the water-works and other purposes, and it was finally agreed that the city would issue $6,500,000 6 per cent. fifty-year bonds for the purpose of taking up the existing debt and completing the water-works, the expense of which was estimated at $1,850,000; and that the balance of the loan, which was taken at 90, was to be turned over to the city for general purposes. There was a further provision that the loan might be increased to $7,000,000 in case the city found it necessary, and this was done. The sinking fund provides for withdrawal by lot and payment of a certain number of bonds every three months during the fifty years, the amount at the end of the first quarter being $5000 and the last quarter $100,000. As security for the loan the city gave a first mortgage on the following property:

Ca.n.a.l de Vento, valued at................ $5,030,000 The aqueduct of Fernando VII., valued at. 153,000 The Cristina market, valued at........... 103,000 The Tacon market, valued at.............. 960,000 The Colon market, valued at.............. 304,000 ---------- Making a total of.................. $6,550,000

together with all revenues and receipts from them during the period of the loan. In addition the munic.i.p.ality mortgaged as further security upward of fifty houses which it owns in various sections of the city.

The amount of this loan was $7,000,000, which has been reduced by the operations of the sinking fund to $6,721,000. The mortgage of 1891 is also for fifty years and at 6 per cent., with the same property as security. The original amount was $3,000,000, which has now been reduced by the operations of the sinking fund to $2,882,000. The amount of arrears of interest and sinking fund on the two loans is $343,600.56, which figures as part of the floating debt first above stated.

The floating debt of Havana arises from the failure to pay practically any salaries, contractors, or bills for materials during the whole of the year 1898, and for some debts contracted prior to this year. The items are given as follows:

Salaries........................... $ 678,117.55 Supplies........................... 230,205.77 Materials.......................... 1,183,312.31 Public works....................... 2,568.59 Interest and sinking fund of debts. 343,600.56 Notes overdue...................... 12,160.00 ------------- $2,450,064.78

This is _prima facie_ a valid obligation of the munic.i.p.ality, and should be funded. But before making a new loan for the purpose of paying these debts it would be only proper to have a court of claims established, before which all the creditors of the munic.i.p.ality could appear and definitely prove the amount of their claims and the date at which they accrued.

The debt question of Havana can not be disposed of lightly. In his instructive report on the munic.i.p.al finances of Havana, General Greene gives it as his opinion that $12,500,000 is not excessive for a city of the size and wealth of Havana. Discussing the question with prominent financiers of Havana, the author found that these gentlemen agreed substantially with General Greene, some going so far as to declare the city could easily stand double the present debt, which would bring it up to $25,000,000. According to the last census, the only city comparable with Havana in the United States that carries a debt approaching this was Cincinnati, which had then a debt of $24,737,611. Cleveland, on the other hand, with a population about the same, had in 1890 a debt of only $6,143,206. The other United States cities of about the same population are respectively Pittsburg, debt, $10,026,806; Buffalo, debt, $10,843,029; Milwaukee, debt only $2,915,900; and San Francisco, less than $1,000,000 of munic.i.p.al indebtedness. The debts of both Boston and Philadelphia were in 1890 less than $30,000,000. It will be bad financiering to burden Havana at present with more debt. When the budget is fully examined by expert accountants a large floating debt will be found, some of which it may be right and just to pay, and much of which is fraudulent. There will be long past-due gas bills, aggregating over $500,000; unpaid bills for street cleaning; salary accounts unadjusted, and a great variety of debts the validity of which may have to be tried in the courts. To meet current expenses the revenues of the city will have to be increased and honestly expended. Naturally, the city will have to bear its share of the important sanitary work which must be done in Havana, but as this work is for the general welfare of the Island, part of it may rightly be taken from the general funds. Judged from an American point of view, the munic.i.p.al debt of Havana at the present moment is quite large enough, and great care should be taken not to increase it beyond the danger line.

The revenue of the city is derived entirely from licences and indirect taxation. Real estate is not directly taxed, and the munic.i.p.ality does not receive directly anything from it. The Island of Cuba imposes, among other taxes, a duty of 12 per cent. on the estimated rental value of all houses in the city and country, and it pays over to the city of Havana 18 per cent. of the amount thus collected on rents within the city limit. The Island of Cuba also levies a tax on industry, commerce, and professions, and it pays over to the city of Havana 25 per cent. of all such taxes collected within the city limits. The other sources of city revenue, which are directly collected by the munic.i.p.ality, are the rent of houses owned by the munic.i.p.ality, revenues of the waterworks, slaughter-house, and markets, taxes on meat, c.o.ke, and wood, licences on factories and business of all kinds, and various minor licences. The total estimated revenue for the year 1897-98 is slightly in excess of $2,000,000, and the princ.i.p.al items, taken from the budget, are as follows:

1. Rent of houses owned by the city............. $159,598.16 2. Special taxes and licences: Street vendors............................. $ 15,000.00 Slaughter-house............................ 163,000.00 Water rents................................ 300,000.00 Tax on pleasure houses..................... 12,000.00 Tax on wood................................ 9,000.00 Tax on charcoal and c.o.ke................... 44,660.00 Licence on factories....................... 26,000.00 Licence on advertis.e.m.e.nts and signs........ 8,101.90 Sundry licences, etc. ..................... 12,496.00 -------------- 590,257.90

3. Charities--Income of legacies................ 4,000.00 4. Public Instruction--Income of legacies....... 1,138.80 5. Public Correction--Income from shops, private cells, etc. .......................... 30,638.42 6. Extraordinary Receipts: Building permits........................... $ 29,000.00 Fines, munic.i.p.al ordinances................ 6,000.00 Special sewer tax.......................... 50,000.00 Replacing street openings.................. 22,258.57 Licence on cedulas......................... 28,000.00 Tax on business............................ 111,300.00 Tax on meat................................ 663,000.00 Special deposits........................... 20,000.00 Sundries................................... 3,300.00 -------------- 932,858.57 7. Contributions by General Government: Quota from real estate..................... $ 165,200.00 Quota from industry and commerce........... 206,700.00 -------------- 371,900.00 ----------- Total................................ $2,090,441.95

These receipts amount to something between $8 and $10 per head of a population estimated between 200,000 and 250,000.

The expenses of Havana are such as are common in every city, namely: expenses of the Mayor and Council (Ayuntamiento), police, fire, health, schools, charities, correction, courts, street cleaning, lighting, repairs and paving, interest, and sinking fund. There is only one unusual item, namely: a contribution of $100,000 towards the expenses of the government of the province. The items are shown in the following statement, taken from the budget of 1897-98:

1. Council: Salaries................... $ 79,220.00 Materials.................. 9,792.00 Elections.................. 9,100.00 Cost of collections........ 49,500.00 Sundries................... 1,874.00 -------------- $ 149,486.00

2. Police: Mayor, deputies, etc. ..... $ 43,060.00 Salaries, munic.i.p.al police. 99,470.00 Materials.................. 3,650.00 Fire Department............ 13,974.00 -------------- $ 160,154.00 3. Urban and rural police: Sundries...................$ 806.00 Street lighting............ 134,589.50 Street cleaning............ 125,577.28 Tree planting, etc. ....... 11,212.00 Slaughter-house............ 20,149.50 -------------- 292,334.28 4. Schools: Salaries...................$ 53,452.00 Materials.................. 13,890.00 Rents...................... 28,904.90 Sundries................... 300.00 -------------- 96,546.90 5. Charities.................... 177,308.80

6. Public works: Salaries................... $ 22,270.00 Labor, repair streets...... 170,000.00 Material, repair streets... 12,200.00 Sundries, repair streets... 4,500.00 -------------- 208,970.00

7. Corrections--Prisons......... 78,683.50 8. Trees........................ 1,000.00 9. Justice and Legal Credits: Interest and Sinking Fund.. 676,195.00 Provincial expenses........ 100,000.00 Repayment special deposits, etc. 26,950.00 Litigation...................... 11,000.00 Street condemnation............. 5,000.00 Subsidy in harbour works........ 5,000.00 Sundries........................ 9,013.47 ---------- 833,158.47

10. New Works: Ditches and Drains................... $45,000.00 Subscription private Fire Department. 2,400.00 ----------- 47,400.00 11. Contingencies: Public Calamities and unforeseen contingencies 45,400.00 ----------- Total..................... $2,090,441.95

The current annual estimated expenses of Havana, according to the printed budget, which the author has had translated for 1897-98, were $2,090,441.95, and the revenue, of course, is made to balance. This looks all right on paper, but it is exceedingly doubtful that the present authorities will find the real facts corresponding with these figures. The items that are excessively high are moneys spent for salaries, for office of mayor, for gas, for street cleaning, for charitable inst.i.tutions, for paving, and for contingent expenses. By "excessive" is of course meant excessive when compared with what the city receives for the money thus expended. The officials do little or nothing for their salaries, the gas is wretched and intolerably expensive, the streets are not cleaned, only the vilest patchwork in the way of paving has of late years been done, and the charitable inst.i.tutions, so called, are in a miserable and filthy condition. In spite of this, the city of Havana is mulcted to this extent for these purposes:

Salary of employes and experts and expenses of mayor's office $120,000 Munic.i.p.al lighting 134,000 Street cleaning 125,577 Charitable inst.i.tutions 177,308 Pavements and paving and drains 208,000 Provincial contingent 100,000 --------- $864,885

If honestly and economically expended, these sums would produce good results without greatly increasing the taxes. The interest and liquidation of the debt makes an annual charge of $676,195, about one-third of the present total revenue of Havana; which, if not excessive, is quite enough under existing conditions of the population.

General Greene thinks the revenues may be with safety increased, say to $3,000,000. There is force in this, but probably the better way would be before the debt and taxes are increased to try what an honest expenditure of the present revenue will do for the rehabilitation of Havana. Here is what General Greene says on this subject:

[Ill.u.s.tration: TACON MARKET, HAVANA.]

"I am inclined to think, although further study might modify this opinion, that the wealth of Havana is such that a judicious system of taxation would yield a revenue of $15 per head, or upward of $3,000,000, and this, if honestly and judiciously collected and expended, would probably be twice the actual net revenue now enjoyed by the city. The collection of taxes of all kinds is now farmed out on a basis of five per cent. commission for collection, which is added to the tax. The tax collector states that there are no arrears, but this statement is vigorously disputed. The whole system of taxation is radically different from that used in American cities, and the system has been so long in operation, and is so intertwined with the system of taxation for the Island, that it would probably be unwise to attempt to introduce American methods during the period of military occupation, the duration of which is so uncertain. It would seem that all that can be done is to make an honest collection, substantially on the basis of existing laws, increasing such items as in the judgment of the military governor can stand an increase without hardship. Such arbitrary changes would create no surprise, as the population has for generations been accustomed to having them made by the Spanish Governor-General."

Arbitrary changes are the one thing the military authorities should avoid in Cuba, for therein lies our greatest danger with these people.

The fact that the people were accustomed to such action under Spanish rule makes them far more sensitive to such action than they otherwise would have been. Note the flutter in Santiago because of the order to send the custom-house funds to Havana, a perfectly righteous order in itself, but promulgated in too arbitrary a manner. Notwithstanding this it created something akin to a panic in Santiago, princ.i.p.ally because it reminded the people of that province of the high-handed Spanish way of doing things. It is not advisable to increase either the debt or revenue of Havana at present, but, in the opinion of the author, it would be far wiser to keep the total revenues about as they now exist. The sources of revenue may be changed, however, to great advantage; increased in some directions, reduced in others. For example, ordinances should be pa.s.sed compelling the owners of all houses not having water supply (and, according to General Greene, there are about 18,000 of these) to put in a water supply immediately. If this were done the water tax could be spread over a larger number of population, the individual taxes reduced, and yet the revenue from this source measurably increased. A good water-works, like that of Havana, should be made self-sustaining, and under proper management the profits from this department could easily be made sufficient to pay all the expenses, and at the same time to take care of the interest and sinking fund of the water-works bonds. From the American point of view the most unwise tax in Havana is that which has made the slaughter-houses of that city a constant source of scandal.

To-day every kilogram of meat killed and used costs the people of Havana 4-1/4 cents, and thus the cost of living of the poorer cla.s.ses is greatly increased; yet the revenues of the slaughter-house are pledged to pay the interest on the water-works bonds, when the water-works themselves are ample security for this purpose.

The real estate of the city should be rea.s.sessed fairly and justly, and a tax-rate arranged which would relieve many of the professions and industries of unnecessary taxation. It would seem from a glance at the budget of Havana that, if this were done, and the petty, annoying taxes abolished, sufficient revenue could easily be raised for all legitimate purposes. As a matter of fact, a very large proportion of the taxes collected for munic.i.p.al purposes in Havana has been diverted from legitimate channels only to find its way into the pockets of those who have had charge of munic.i.p.al affairs. According to the evidence of several witnesses who appeared before the author in Havana, a large amount of money was exacted from the people of the city by corruption, in the way of petty fines paid direct to officials, and not into the treasury of the state, and also large sums of money in the shape of payment for indulgences, much in the same manner as the Tammany officials exact tribute from those conducting illegitimate business or those engaged in breaking the ordinances of the city. Relief from this sort of exaction has been at once felt in Havana, but will not be fully appreciated until the present Governor of the city is able to ferret out and stop these several forms of imposition.

CHAPTER XIII

BANKS AND CURRENCY

The heading of this chapter is somewhat misleading, for, strictly speaking, Cuba has neither banks nor currency--that is, of her own. The basis of the money which circulated in Cuba before the military occupation of the United States was Spanish gold, princ.i.p.ally the _centen_, or twenty-five-_peseta_ piece, the value of which had been inflated to $5.30 by royal decree. Owing to the scarcity of this coin and to the fear that it might leave the Island, in 1893 the French louis, or twenty-franc piece was similarly inflated by royal decree and made legal tender in Cuba at $4.24. The silver coins of Cuba were of Spanish origin: the peso, or dollar, the _medio peso_, or half dollar, the _peseta_, twenty-cent piece, the _real_, or dime, and the _medio real_, corresponding to our nickel. There are also the usual bronze coins. The silver money of Cuba has for some time been worth only its market value, and that subject to daily changes. At various periods in the history of Cuba the Spanish Government at Madrid has attempted to force bank bills on the people of Cuba, and such attempts, as a rule, have ended disastrously to the people of the Island. The Spanish Bank of the Island of Cuba, a semi-official inst.i.tution, whose governor was appointed by the Spanish Government, has also at times issued bank bills, and to the credit of this inst.i.tution they have always been redeemed ultimately. As much cannot be said of the Government, whose repudiated bank bills, aggregating about $17,000,000, are at this moment only worth six or seven cents on the dollar. The pa.s.sing of the control of the Island into the hands of the military authorities of the United States has happily ended all the currency complications of Cuba, and the order of President McKinley, which went into force January 1, 1899, will in a short time not only bring order out of confusion, but gradually reduce the currency systems of Cuba to a sound basis, making gold and silver alike worth one hundred cents the world over--no more, no less.

The object of this order is not only to unify the Cuban currency, but in time to replace the present system by the monetary system of the United States.

There is no need for entering further into the history of Cuban currency, but in the following pages will be given the reasons which led up to the Executive Order of December 28, 1898. Considering that the author was called upon by the President of the United States and the Secretary of the Treasury to make a report upon this subject, and the report was subsequently adopted and acted upon, therefore the facts herein stated may be regarded as official. The real point at issue in relation to Cuban currency and the only one which caused the United States authorities any trouble was that arising from the inflation by royal decree of the Spanish twenty-five-_peseta_ pieces, popularly known as alfonsinos, or _centen_, and the subsequent inflation of the French twenty-franc piece, the so-called louis, which, as we have seen, were given a legal value of $4.24 and decreed since the end of 1893 as legal money.

The Spanish authorities at Madrid, having thus inflated two gold coins six per cent. above their current value and about ten per cent. above their intrinsic value--for the mint value of these two coins at Havana is $4.776 and $3.8208 respectively--the United States authorities at Washington were now called upon to inflate a third gold coin and make the American eagle worth $11 in Cuba and our $5 gold piece current there at $5.50. As a temporary measure this might have had some justification, and the statements in support of it from Cuban bankers, planters, and business men had a certain degree of plausibility. The process, however, is entirely artificial, and whatever was done in this direction to-day must be undone some other day, and the only question the Administration had to decide was whether the inflation should be taken out when the United States authorities took possession or the operation postponed to some more opportune time. The danger in following the advice of some influential financiers of Havana lay in the adoption by the United States Government of a bad precedent in Cuban financiering, inaugurated by the Spanish Government, a precedent for which the United States was in no manner responsible.

The reckoning day must come for all inflated values, whether of paper, of silver, or of gold; and when that day comes someone will suffer.

Fortunately, in this case the degree of suffering was small, varying only from six to ten per cent. The practical question would seem to be how to disinflate these two coins with the least possible disturbance to mortgages, contracts, notes, and all cla.s.ses of existing agreements to pay money.

Current matters will adjust and take care of themselves. It is generally known that all transactions in Cuba since the close of the war have been made with the belief that the United States would not continue the royal decree of Spain, and that the inflations would collapse with the disappearance of Spanish rule.

In Santiago the author found the bankers and financiers in favour of leaving matters as they existed and adopting similar methods in the rest of the Island, namely, reducing the $5.30 gold piece to $5. This was the view taken by Mr. Schuman, of Schuman & Co., Santiago.

On this question the Chamber of Commerce of Santiago, in a thoughtfully prepared memorial, submitted to the President of the United States, say:

"It is frequently difficult in this market to effect change, especially in small sales, for the want of fractional currency. As this makes considerable difference in transactions, the chamber considers it necessary for the American Government to remedy this difficulty by sending sufficient silver fractional money, utilising it to pay the army of occupation.

"This chamber has heard that the administration of the custom-house of this port has solicited the Government at Washington to declare American money legal and obligatory tender in all transactions which take place in this territory, and we consider this movement premature, as the political situation of the country is not settled; and furthermore, prejudicial to commercial interests and to the public wealth by the depreciation it would cause in the Spanish gold in circulation and for the difficulty it will occasion through the lack of American money in sufficient quant.i.ty for these transactions. For this reason we beg that this pet.i.tion will not be considered, it being even more inopportune, since the resolution of the civil governor of the province on the first of August last, establishing the legal value of Spanish gold, is just and has given satisfactory results."

Speaking to the author on the same subject, Mr. Brooks, of Brooks & Co., Santiago, a careful financier and capable business man, said:

"Regarding the currency question, we should also be inclined to support the opinion of the Chamber of Commerce, to leave matters as they are at present, _i.e._, the Spanish and French gold coins having been disinflated, to leave them as current circulating medium, including for the payment of custom-house duties. It is also always a small advantage for the sugar estates to pay their labour in Spanish gold as it represents a saving of three to four per cent. as compared with paying them in American money, as where a planter now pays $5 Spanish, he would, with a change in the circulating medium, have to pay $5 American, which would represent from three to four per cent. advance in wages without receiving any compensation from his sugar shipped to the United States, from which, in former years, and with inflated gold values, he derived an advantage of ten per cent."

A partial adjustment of the question was suggested to the author by Dr.

Antonio Jover, director of the Spanish Bank of the Island of Cuba, and as Dr. Jover is an authority on Cuban finances, the statement thus made is quoted in full:

"The only way to settle all the difficulties of the present Spanish monetary state of things is to declare legal tender the American dollar and admit at par all Spanish gold coins.

"1. Thus the onza should be worth $16; the medio onza $8; the doubloon, $4; the escudo, $2; the centen, $5--that is, pretty nearly its intrinsic alloy and weight value.

"2. The English sovereign ought to be taken for $5, and the French louis (which circulates in Cuba in great numbers) for $4.

"This arrangement, that slightly improves the value of the Spanish gold,--for the centen is worth in the New York market $4.87 or $4.90 at the utmost,--would tend to drive to Cuba the foreign coins of this country, perfectly useless for circulation. As for the Spanish silver, it is considered there almost as a merchandise or stock value subject to daily quotation, and it is really troublesome in its use. Therefore I would propose to give it a fixed value in American gold, thus--

Value.