Tax Redemption Notes (Baby Bonds)

The city of Milwaukee faced a record number of defaults on real estate taxes pinching cash flow. Mayor Daniel Webster Hoan proposed a scrip plan at the end of 1932 but it was rejected.

Financial health did not improve and the city floated an issue of small denomination bonds to raise cash. The bonds were backed by tax certificates taken against delinquent property taxes.

There was considerable opposition to issuing the bonds. Seven separate legal challenges were filed. The argument was that by issuing these bonds the city exceeded its debt limit. The courts determined that the scrip was valid as it did not represent borrowing and was only payable out of the sales of tax delinquent properties.

The first series (Series A) were dated June 1, 1933 and were sold at face value earning 5% paid annually with a four year maturity subject to call. They were sold in denominations of $10.00 and $100.00. The total authorized was $5,000,000.00

Poor tax collections remained a problem and the city continued to face a cash shortage. In February 1934 the city issued $1.00 and $5.00 non-interest bearing certificates to meet the municipal payroll. Employees were paid part in cash and part in scrip. The notes were initially discounted up to 10% but eventually were accepted at par and city creditors agreed to accept them.

In April 1934, the city issued 300,000 Series B bond as a single $10.00 denomination as a refunding instrument for $3,000,000.00 of the Series A bonds.

Series C followed in 1935 similar to Series A with $1.00 and $5.00 non-interest bearing notes used for payroll and $10.00 and $100.00 bonds sold to investors.

Series D, Series E and Series F were issued in 1936, 1937 and 1938 as $1.00 and $5.00 notes only. The city balked at an issue in 1939 when merchants indicated an unwillingness to continue to accept it..

The total issue of Milwaukee’s tax redemption notes amount to over $14,500,000.00. In 1948 the city established a segregated account to redeem $6,715.00 in outstanding principal and interest. As of September 1975, $6,215.00 remained in the account when it was eliminated. Nine years had passed since the last scrip was presented for redemption. As of December 31, 1958, the following number of each series and denomination remained outstanding:

Series/Value $1.00 $5.00 $10.00 $100.00 A (1933) 779 178 121 3 B (1934) NA NA 32 NA C (1935) 463 89 2 0 D (1936) 245 16 NA NA E (1937) 189 78 NA NA F (1938) 343 14 NA NA

The notes were printed by the Gugler Lithographic Company of Milwaukee. The Series A and Series B notes feature a portrait of Solomon Juneau, one of the city’s founders, and the tower of city hall. In the later series, city hall was replaced by a portrait of Byron Kilbourn, another of the city’s founders. (Juneau and Kilbourn were rivals demonstrated by the fact that Kilbourn refused to line up the streets in his plat of the west side of the Milwaukee River with Juneau’s plat on the east side of the river.)