large volume of such bonds are outstanding in the United States.
Road bonds should be issued only for durable types of improvement and
the life of the bond should be well within the probable useful life of
the road surface. It is customary and highly desirable that the
general nature and extent of the improvement be established before the
bonds are issued. It is desirable that bond issues be subject to
approval by referendum before issue and that is provided in every
instance.

Highway bonds are of three classes known as Sinking Fund, Annuity and
Serial Bonds, respectively. The earlier bonds issued were almost all
of the sinking fund class, but in recent years the serial bond has
been widely employed and is probably the most satisfactory to
administer.

=Sinking Fund Bonds.=[1]--When this type of bond is employed, the
amount of the expenditure for road improvement is determined upon and
the length of the period during which tax payments shall be made is
settled. To employ a concrete example, it may be assumed that $100,000
is to be expended for road work and is to be paid at the end of ten
years. The interest rate on the bonds will vary with the condition of
the bond market and the stability of the political unit issuing the
bonds, but is usually about 5 per cent. Knowing these factors, the
amount to be added to the sinking fund each year is computed. In order
to pay the interest on the bonds, a tax of suitable rate is levied,
and in order to retire the bonds at the end of the period, a sum is
set aside each year which is supposed to be invested and draw interest
which will be added to the principle, and the principle and interest
comprise the sinking fund. The principle of the sinking fund is
obtained by tax levies, a sum being added to the principle of the
sinking fund each year.

[1] For a more detailed discussion of highway bonds see Bulletin
136, U. S. Dept. of Agriculture, which is the basis of this
discussion.

The success of this method of financing depends upon the proper
administration of the sinking fund. It must be invested with fidelity
and the fund be kept intact. Usually the sinking fund cannot be
invested at as high a rate of interest as the bonds bear and there is
some loss as a result. Road bonds bearing 5 per cent interest can
usually be sold at par while the sinking fund will usually net about 3
or 3-1/2 per cent interest. The total cost of a bond issue will be
greater by the sinki