“Misleading Circular”

Sun (Auckland), Volume III, Issue 654, 4 May 1929, Page 13

“Misleading Circular”

TRANSPORT BOARD LOANS

Mr. Allum Answers Critic

/'■ONI ENDING that the Auckland Transport Board’s cirw cular to householders asking public support for the loan proposals to be submitted next Wednesday is “utterly misleading, Mr. Herbert Tiarks, of Avondale, has written to The Sun criticising statements of the board in regard to its financial position.

Mr. J. A. C. Allum, chairman of the Transport Board, was invited this morning to comment on Mr. Tiarks’s objections and detailed the financial history relating to the points raised m the criticism of the. circular.

Mr. Tiarks’s letter is as follows: Sir. — During the past few days a circular has been issued by the Transport Board advising the citizens of Auckland to be sure and vote for the transport loans, which are to be placed toe «> re them on Wednesday next. The effrontery of the circular passes understanding. It is utterly misleading. Perhaps the best method of proving my assertion would be to condemn the board out of its own mouth by quoting from the circular itself. In speaking of the past management of the transport system the following statement appears: “Solely out of revenue it has paid all its own expenses.” On the last published accounts of the Auckland City Council, now known as the Transport Board, we find on the tramways balance sheet the following un realisable assets —Track Renewals Suspense Account, £52,934 17s 9d. I am somewhat at a loss to accept it as an asset since it represents a sum expended to make good the wear and tear of one of the capital assets of the undertaking, and as such should have been provided for out of revenue, and not by the method of raising a loan to meet the charge. Under the double account system the capital account shows on the one side the amount of capital raised, and on the other the manner in which such capital has been expended, the assets being shown always at their cost price, any fluctuations being disregarded—depreciation, renewals, etc., being provided for by a charge against revenue and credited to a fund which is specifically invested so that the money may be provided to meet the replacements and renewals of the depreiated capital assets. The tramways balance sheet issued by the tramways department and signed by the manager, savours of a mixture of the double account system, ordinary double entry, and an admixture of a system known only to the tramways department. “UNRELIASABLE ASSETS'* Other unreliasable assets which have apparently escaped the notice of our transport financiers are Assets Realisation Account in debit balance £22,149 14s 3d. What is this? Possibly the loss on the sale of the powerhouse; but there is no explanation. Motor Omnibus Suspense Account is another unrealisable asset, £14,031 8s Id.

Add them up and add thereto the admitted published revenue losses, and we have a total of approximately £170,000. More could be added, but this will suffice as proof that those in charge of the transport finances have not paid all the expenses out of revenue.

It is further stated in the circular: “The transport undertaking has never cost Auckland ratepayers one penny.” Certainly no rate has been struck to make good the losses, but a day of reckoning must come—however long it may be deferred—and even the Transport Board cannot be sufficiently fatuous to assert that the assets of the citizens of Auckland have not been depleted by these losses. It has been previously proven beyond all argument that the transport losses have not been confined to the loss on running buses—the trams, too, having been run at a loss —and had the revenue accounts of years past been drawn up as they should have been, the citizens of Auckland might to-day know the true facts, in which case they would never have agreed to a Transport Board composed of a majority of members drawn from a City Council which was and is responsible for the muddle. While it may be logically argued that further capital expenditure on transport is necessary, those who sanction the raising of further loans may well ask themselves whether, in view of the ineptitude and past muddle, the

board as at present constituted is fitted to have the handling of a further £500,000. MR. ALLUM’S REPLY Mr. Allum replies as follows: "The statement that the transport system has paid all its own expenses solely out of revenue is strictly correct. The position in regard to the matters referred to by Mr. Tiarks is as follows: In 1926, when I was in England, I understand the late Prime Minister conferred with the City Council authorities regarding work which might be put in hand to relieve the unemployment situation which then arose. “The track renewals were necessary, and finally it was agreed that this work should be expedited and the Government authorised the City Council to raise a loan of £IOO,OOO for this purpose. The loan will be repaid out of the sinking fund which is provided. However, it is admitted that the whole of the money was not expended on when those present passed a unanicapital work, and after consultation with the Government Audit Department it was agreed that 40 per cent. (£40,000) should be regarded as capital expenditure, being the ascertained increased value of the asset, while the balance of 60 per cent. (£60,000) should be written off over a period of years. CRITICISM UNJUSTIFIED “All the time the sinking fund is being provided, .so that, taking circumstances into consideration, the criticism is unjustified. The City Council’s only interest at the time was to assist in finding means for the relief of unemployment, and it is to be regretted that on so many occasions its proper action should be so harshly criticised,” Mr. Allum continued. “The balance-sheet of the Tramways Department issued by the City Council is audited by the Government Auditor, and it would appear more appropriate for any criticism to be directed to his department for comment. lam satisfied that the Government Audit Department understands its business sufficiently well for the public to bo assured that the balance-sheets presented by the various local authorities accurately represent the true position. “As regards the Assets Realisation Account, £22,149 14s 3d, this represents the balance of the loss occasioned when the Hobson Street power station was taken over by the Auckland Elec-tric-Power Board. The loss was made in the asset, but the gain lies in cheaper electricity which resulted from the development of the electrical undertaking, and this gain will continue over the years. The loss has been written down year by year, until now only the sum of about £14,000 is left to be provided for. Mr. Tiarks omits to say that year by year a sinking fund of 21 per cent, has been provided to liquidate the original loan on maturity, and I calculate that at this date there is in the sinking fund the sum of £28,000 which can be set against the loss in realisation of the Hobson Street asset. “CAN BE DISTORTED”

As regards the Motor Omnibus Suspense Account, this criticism is just another example of how wise procedure can be distorted to suit individual argument. The Motor Omnibus Traffic Act, 1926, authorised the City Council to raise by way of loan sufficient money to pay for services forced on to the City Council under the provisions of the compulsory clauses of the Act. “The council, however, very wisely decided it would not raise a long-term loan to pay for the bus services forced upon it, but obtained authority from the Government to carry an overdraft of up to £40,000 in order that it might pay for the services out of the general account. “It was further agreed that the omnibuses themselves should be written off out of revenue. The Act says during the current financial year the whole of the buses will have been written off our of revenue. The Act says that in arriving at the value of the omnibus services acquired by the council no allowance should be made for goodwill, but the Court detex-mined that the fleet value should be taken into account. Just what difference there is in the terms escapes me, and I cannot but regard the difference between the actual value of the assets and the sum awarded by the , Court as being anything except goodwill. This is the view which the council adopted, and this item is being written off over 10 years. The net result of the council’s action is that it has avoided capital charges on a long-term loan, and the cost of the undertakings taken over is being rapidly wiped off. SINKING FUND PROVIDED

“Mr. Tiarks carefully refx-ains from stating that the tramway undertaking has no less a sum than £430,000 invested outside the undertaking and earning interest. This sinking fund is being added to, year by year, and in 1940 the whole of the original loan of £1,250,000 will be repaid out of this fund and in succeeding years other loans will be similarly liquidated.

“A further point which is not emphasised is that in times of sti'ess a trading concern may pass a dividend for one or two years on the principle of ‘no profits, no dividend.’ On the other hand, the Ti'ansport Board must pay the interest on the capital, no matter what the circumstances may be. Also, I notice no reference is made of the remarkable recovery of the undertaking in that whereas two years ago the losses were £1,200 a week and today the undertaking is ‘breaking even.’ “The members of the boai'd realise that it is their duty to take the position as they find it, and do their very best for the ratepayers and give the best possible service for the travellingpublic. “Mr. Tiarks’s letter surpr-ises me when I recall that he was present at a recent meeting at Blockhouse Bay mous resolution in favour of the proposals,” Mr. Allum concluded.