LOCAL BODY LOANS

Evening Star, Issue 21748, 16 June 1934, Page 11

LOCAL BODY LOANS

NEARLY A MILLION AUTHORISED REDEMPTIONS TOTAL THREE MILLIONS SUCCESSFUL CONVERSIONS , [P«« Ukttitj Pans Asiociatios.] WELLINGTON, June 15. . Reviewing the Local Government Loans Board’s operations, the Minister of Finance, the lit. Hon. J. G. Coates, mentioned that 1933-34 was a notable year in the history of the Loans Board owing to the passing ox the 'Local Authorities Interest Reduction and Loans Conversion Act, 193233, Which took effect as from April 1, 1933, and under which the board was charged with the duty of considering applications for authority to convert the existing loans. The conversion of the public debt of local bodies thereby authorised added considerably to the responsibility of the bpard. “It is agreeable to find,’’ said a Mr Coates, “that the local authorities are taking advantage of the legislation referred'to, as is 1 illustrated by the fact that to date'existing securities --.totalling' £28,303,304 have been dealt with by the goard, and the-issue of new securities for £23,003,562 is authorised in respect thereof; Although in many cases the premiums on conversion are met by the issue of new securities, there is still a reduction in the amount of debt in the process of conversion. This is brought about by utilising the existing sinking funds for the purpose of debt reduction, as at .the date of conversion, this being possible of course only in cases where the sinking fund commissioner and the lender are one and the same person or where tho lender agrees to accept immediate repayment. “ The. gross debt owing by local bodies as to March 31, 1933, was £72,476,056 which, together with the loan debt of hospital boards, £1,436,066 (which figures are not included in the ordinary statistical "returns), makes the total debt £73,912,122. Of this however, only £51,179,123 is domiciled New Zealand, and of the latter figure a further £4,592,319 is not subject to conversion, due chiefly to the, low rate of interest.. Tho net debt as at April 1, 1933—that is the 'date from which the Conversion Act applies —was £46,586,804, as £28,303,304 had been dealt with by the Loans Board in .the conversion operations already handled. " The balance remaining is £18,283,500. Approximately , £2,000,000, of this figure, however, has been dealt .' with since April 1, 1933, either by ‘complete redemption from the respective sinking funds, or by way of renewal loans, so that the figure still to be dealt with by. the board, either by conversion or by the way of renewal loans, is now reduced'to manageable proportions, although there is a vast amount of, work still to be .done.”, ■ ■ ■ ' :

Mr Coates . also , Stressed the point jthat one of the moat desirable features of the_ conversion operations was the alteration in the system of repayment of loans from the sinking fund basis, moneys were allowed to accumulate in a sinking fund until the final maturity date, "to the more modern method of redeeming debentures each year from the sinking • fund to an amount at least equivalent to the annual, payments into the * sinking fund. 'The present accumulated .sinking funds under-.'this system 1 are also' gradually liquidated for the purpose, of redeeming further debentures, so that Ho question arises' as to. the loss of future sinking fund investments, and itherc is no uncertainty as to the earning power of investments. The new system also ensures a more oven- flow of money into the hands of investors for reinvestment , m ; other channels or local body securities. “ I think we are justly entitled to claim,” concluded Mr Coates, “that the whole system of local body finance is being quietly revolutionised, and I feel confident that the results which will .follow, from the movement initiated by the passing of legislation authorising conversion to he undertaken will lie beneficial and far-reaching. I freely: acknowledge the important part the Loans Board lias played and tbit the : very satisfactory manner in , which . the conversion schemes are being undertaken is in no small measure due to the efforts of the board.”

UAHS BOARD OPERATIONS A REVIEW A- review of the operations of the Local Government Loans Board was made by Mr Coates. He indicated that the total applications received by the board during the year ended March 31 ‘ amounted to £3,884,132, which, together- with applications totalling £920,7(5 received during the previous year but not finally disposed of, made a total to £4,813.007 considered by the board during the past year.. This amount'was dealt with as follows: ■ —New Loans.— For Waterworks £223,150 Electric power works 187,250 Streets, etc. 196,000 Drainage and sewerage ... ’... 110,250 Harbour works ... ... ... 76,600 Bridges 20,100 Fire Boards’ equipment and buildings ... ... ... ... 28,450 Miscellaneous works 75,760 t Total of new loans 917,560 —Redemptions.— Redemption loans authorised 2,744,245 Total sanctioned ... 3,661,805 Referred back 956,085 Declined I 196j017 The diversion of unexpended loan moneys amounting to £156,573 to enable other works of a similar nature to be undertaken] wa’s also authorised by the board during the year, under the statutory powers vested hi it. Mr Coates drew attention to the fact that although £3,661,805 had been authorised during the year, only one-quar-ter of that sum represented additional borrowing, the other three-quarters being fnerely reborrowing to meet the balance of maturing loans not covered by the sinking funds. Mr Coates supplied the following table, which summarises' the board’s activities during the seven years since it commenced to function on April 1, 1927 (the last two columns are the sums sanctioned): —

** It is significant to note,” said Mr Coates, “ that the total applications received by the board, even in the years

before the effect of the depression was being felt, showed a material decrease after the first two years of the board’s operations, indicating that the very existence of the hoard is having a steadying influence. One of the most pleasing features. of local body finance is that for the financial year ended March 31, 1932, there was a decrease in the gross amount of local body debt then outstanding, this being the first occasion on which a reduction in debt had been revealed from 1921, when the gross debt was approximately £32,000,000. There was a steady- increase till 1927 of over £5,000,000 a year, so that the debt actually doubled during that period. From then onwards there was a gradual tapering off in the amount of borrowing (due undoubtedly to _ the effect of the Loans Board’s operations), the increase during the period from 1927 to 1031 averaging slightly oyer a year. For the year ended March 31, 1932, however, there was an actual reduction in thcjgross debt.’ 1

Total New Redemption Applications. Works. Loans. 1927-28 £4,636,609 £3,212,810 £1,048,796 3928-29 0,007,045 • 3.800,051 809,221 1929-30 4,218,730 3,063,842 907,875 1930-31 3,840 505 1,766,356 838,901 1931-32 3,413,360 781.195 2,483,810 1932-33 ... 3,951,645 400,521 2,348.231 1933-34 - ; 3,884,132 917,560 2;744,243 Total ... £28,951,071 £14,514,110 £11,241,079