CITY LOAN PROPOSALS

Evening Post, Volume CXVIII, Issue 89, 12 October 1934, Page 8

CITY LOAN PROPOSALS

It would be premature to comment in detail upon the proposed CityWorks Loan when the list of works is still subject to alteration. The underlying principles to govern borrowing may, however, he considered now. The Mayor stated these fairly when he expressed his own very grave doubts on the likelihood of getting out of difficulties by going in for loans, and when he quoted instructions given to the City Engineer that the loan schedule should include: (a) Capital works which would be essential within the next two or three years; (b) works which would show some definite saving in maintenance against sinking fund charges. It would be the gravest mistake for the city to set out deliberately to borrow its way to prosperity. There is, nevertheless, justification for borrowing on the principles that an enterprising but prudent business man would apply. Such a man would be prepared to undertake capital work which was essential and could not be,paid for from revenue or which would show a definite net return. He would take into account that he could obtain the money, the labour, and some of the material at lower cost than for years past. , The city should apply to its proposals the prudent business man's tests. Moreover, with a public body we believe that there is reason for going a little further and considering the community effect. Judicious spending by a public body will help in brightening the oullook so that private people who have the means will also be encouraged to spend. This, however, should have a proviso: The public spending should not be on a scale to make a boom, but just enough to stimulate business so that in future it will keep going without stimulation.

NATIONAL ELECTRICAL POWER

The announcement that the Government cannot at present reduce its bulk charges for electricity was the most important part of the Public Works Statement. We cannot in a short space review the many and varied arguments submitted by distributing authorities in favour of revision; but we may draw attention to the strength of the case for sound finance presented by the Minister of Public Works. Last year, on an average operating capital of £10,280,025 the gross 'profit was £763,139, representing an average return of 7.41 per cent. From this the Department was required to meet interest on capital, 2.per cent, depreciation on depreciable assets, and 1 per cent, sinking fund. We are not informed whether the profit A\ras sufficient to meet all these charges last year; but the Statement shows that they have not all been met in die past. Arrears have yet to be covered. In the current year the Waitaki development capital will come into the account and it will not, immediately have full earning power. It would not be prudent, under these circumstances, to take risks with the reduction of charges, especially as the cost of bulk power is only part of the cost of power to the consumer, and there is no guarantee that a lower bulk cost would reach the consumer or be sufficient to increase consumption. The Government must first be sure that its stations are paying, and paying means covering depreciation and sinking fund. When the enterprise is thoroughly sound* financially it will be time to consider reduction of charges. Reduction now would be gambling on the assured future of hydro-electric power. It certainly looks assured now; but so did the railway enterprise at one time. Who can say that hydro-electric power will not at some time have to face competition as keen as that which the rail has had to face from the road?