LOCAL BODY LOANS.

Hauraki Plains Gazette, Volume XXXVIII, Issue 5129, 23 May 1927, Page 3

LOCAL BODY LOANS.

CONTROL BOARD REGULATIONS.

PROCEDURE AND RESTRICTIONS.

Under the- Local Government Loans Act of last session a board was set up by the Government to supervise all future borrowing by local bodies. The scheme is now in operation, and the provisional rules, which have been adopted, are as follows

“1 Local authority is required to first advertise its intention to consider at a certain date, of which 14 days’ notice must be given, a motion to apply for sanction of the loan, and at the same time call for objections. If the resolution is passed and objection received., same to be forwarded to the board. “2 Local authority to apply to board for sanction for raising loan.

“3 Particulars to’ be supplied on special form, showing purpose of loan and statistics of local authority.

“4 Preliminary plans and estimates, together with any reports obtained by the local authority, to be supplied to the board.

“5 Treasury to examine application and report to board on : Propriety of loan ; statistical data supplied ; estimates of increased rating or revenues; capacity of district to be loaded with higher, rates ; if loan is for trading purposes, whether scheme is likely to be self-supporting or an extra burden to be thrown on rates ; proposals for sinking fund or repayment of loan ; and any other factors considered necessary.

“6 The preliminary plans and estimates to be forwarded to the Public Works Department for. investigation and report upon the proposed scheme, as regards: Advisability of scheme for the district; whether the proposed works are likely to carry out the intention of the scheme; whethei estimates have been properly prepared and are reasonable ; if the scheme is in competition with any other scheme conducted by the Government or another local body or private party ; and general. “7 In addition to 5 and 6, harbour board applications also to be reported on by the Marine Department', sewerage and water supply schemes by the Health Department, and any other, scheme by the appropriate department. “8 The board will consider applications for sanction when all reports are available.

“9 In case of unemployment or other urgent work necessary, such as earthquake, fire; or flood, Treasury and Public Works wi.ll examine and provisionally approve commencement of work, subject to confirmation by the board. PROPRIETY OF DOAN.

“10 Money must not be borrowed except for permanent works. These include any works in which the .cost ought, in the opinion of the board, to be spread over a term of years. Loans for repairs are not entertained. “11 Capital expenditure is not necessarily expended out, of loans, but loan. expenditure should be limited to capital works, i.c., permanent works. “1.2 No expenditure which should properly be defrayed from Revenue Account may be made the subject of a loan. Renewals and replacements of obsolete or worn-out material should not be made the subject of a. fresh loan unless the original loan has been paid off. During the currency of a loan renewals should be charged to revenue. Generally speaking, salaries and wages of administrative staff should not be charged to Jdan account.

“13 Small amounts should be paid directly out of revenue, as only a very small rate should be sufficient to provide funds to meet the expenditure.

“11 The board, in considering the propriety of granting a loan, shall have regard to the sufficiency of the security for its repayment, and shall determine whether the work for which the loan is asked would be such a benefit to the public as to justify a loan. “15 Sanction should be obtained before any expenditure has been incurred,, as the failure to obtain it would necessitate payment out of current expenditure. “16 Save 'in exceptional- circumstances, a new loan should not be raised to replace an asset upon which debt is still outstanding. The amount of the outstanding debt should be charged against Revenue Account or Reserve* RENEWAL OF LOAN.

“17 Sanction for reborrowing should be obtained before the due date of repayment of the old loan. PROVISION FOR REPAYMENT.

“18 Loan may be for such time, according to the permanency of the various works, from five- years, but not exceeding 50 years (Local Bodies Loans Act, 1926. section 37)', as the board determines in each case, and local authority must either pay it off by equal annual instalments of principal or of principal and interest, or in every year set apart as a sinking fund a sum which, invested in authorised securities, with accumulation compound interest, will be sufficient after payment of all expenses to pay off the loan within the period sanctioned.

“19 Ti> determining the period for ‘repayment the board must have regard to the probable duration and continuing utility of the proposed works. The principle of the Imperial Government may be. followed whereby loans raised by local authorities must be repaid within the lifetime of the asset for which they are required, on the principle that the amount of the outstanding loan is balanced at any time, by the residual value of the asset.

“20 The basis adopted to arrive at the period within which repayment must be effected is generally the estimated working-life of an object rather than the desirability of the asset, but also the conditions necessitating this provision, such as the growth or otherwise of the population of the district, the change of outlook or advance in public opinin, together with the general financial position of lhe authority, and to the expediency of the cost of the work being paid by

the generation of persons who will immediately benefit by such work. SINKING FUND. “21 The usual date for contribution to the sinking fund to commence- is one year from the date of allocating the loan, but where the undertaking is of a revenue-producing character payment of sinking fund may be suspended for such period not exceeding five years, as may be decided by the sanctioning authority. “22 At any time the local authority may apply part or the whole of the sinking fund in discharge of the loan, provided it pays into the fund ecah year the interest on the money so applied. INTEREST. “23 Generally speaking, no payment of interest should be made from borrowed money. An exception should be made where the loan expenditureis for revenue-producing assets, such as electrical schemes, where interest can be capitalised up to the timewhen revenue is earned; but not exceeding three years.”