RATE TO COVER COST OF LOAN.

Manawatu Herald, Volume XXXII, Issue 817, 26 February 1910, Page 2

RATE TO COVER COST OF LOAN.

When the Town Clerk estimated that it would be necessary to strike a rate ot 5->4id in the £ on the unimproved value of all properties in the sanitary area as security for interest and sinking fund on a loan of £20,000 for the proposed water and drainage schemes, he based his calculations on the assumption that the interest payable on the loan would be 5 per cent., with one per cent, sinking fund. It will be evident to all that this has been greatly over-estimated, as according to the “State Guaranteed Advances Act,” passed last session, local bodies can borrow the money at the same rate of interest as at that which it is raised by the Government, plus a commission fee not exceeding one half per cent. That is to say, if the Government obtains the money at y/z per cent, it can be borrowed by the Council at the same rate of interest plus the half per cent, commission, which, of course, will only be payable the first year. To this must be added, say, one per cent, sinking fund, making a total after the first year of per cent., or 1 £2 per cent, less than has been provided tor. This would make a difference in the amount payable annually for interest on the proposed loan of ,£20,000 of £3OO, and the rate that it would be necessary to strike as security for the loan would be reduced from the proposed amount, 52£d in the £, to 4 i-i6d, which would mean a considerable saving to ratepayers. Further, the maximum amount of interest that can be charged by the Government to local bodies is 4per cent. The Mayor has since explained that the reason why the interest was computed at the higher rate was because the Council did not know whether theyj could obtain the money from the Government and thought that if they had to borrow in the open market that rate of interest would have to be paid. If they had only provided for interest at per cent, and then found that 6 per cent, had to,

be paid, all the preliminary steps would have to be gone over again and it was to avoid this that the provision was made for.