LOCAL BODY LOANS.

Taranaki Daily News, 16 February 1920, Page 6

LOCAL BODY LOANS.

THE SINKING FUND PRINCIPLE. In his report to the New Plymouth Borough Council, the General Manager (Mr. F. T. Bellringer) says:— The question of the refloating of a consolidation loan in 1922 raises the question of whether the present system of local body borrowing is a satisfactory one. Personally I have long held the opinion that the law permitting local bodies to raise loans without an adequate sinking fund is wrong in principle. I dealt with the matter in a report submitted to the Council in 1918, pointing out that the greater proportion of the earlier loans carried no sinking fund, whilst others carried a sinking fund of only 1 per ceat per annum, too small 1 to be of any material use. The following is an extract from the report in question:— "Under the system of no sinking funds posterity is loaded with financial burdens for which it has received no material benefit. This is brought home to us when we realise that at the present moment Ave are paying interest on loan monies expended in work in Countenav street, Gill street and Dawson street, and for roofing the old Town Hall in the year 1880, over 38 years ago." The existing Council appreciated the position, and of the two recent loans the £IO,OOO streets loan ar.d the £40,000 electric lighting extension loan, the former carries a sinking fund cf li per cent., and the latter one per cent. The provision of a sinking fund, however, is optional, and there is no guarantee of what future Councils may do. especially if faced with a high rate on the money market when large consolidation loans are being raised. The Government Advances Office at present is empowered to lend a limited amount to each local body for certain specified classes of work- These loans are for lengthy periods, and are repiyable by equal half-yearly instalments of principal and interest combined, the loan being completely paid off on t.h» payment of the last half-yearly instalment. The I maximum* amount which the Dspartment is permitted to lend to any one local body in any year is so small, however, as to preclude the larger local bodies from availing themselves of the benefit of the svstem.

It would be. of the greatest advantage to local bodies if the Government could be induced to considerably increase the limit, and to provide for local bodies the money required for public works in the nature of wasting assets such as streets, bridges, sewers, etc. When borrowing for works of this nature local bodies should be compelled to adopt this system and so preclude the possibility of future generations being loaded with a large public debt without a correspond- " ing asset for the liability. In regard to loans raised for commercial undertakings such an electric light, tramways, etc., ;the position is different, inasmuch as almost invariably money is set apart annually to meet any depreciation and to provide for renewals and replacement of obsolete plant. At the end of the period for Which the loan is borrowed there is therefore an asset to be get off against the liability. As an illustration of the extent to which some cities avail themselves of the 'advantages <ff the system of loans extinguishing themselves after a fixed period of yeaTs, may fbe quoted the city of Adelaide. Every loan raised by this city •' since 1910 has been raised under the system referred to, and out <j{ a total of £236,1115 raised, no than £178,715 is repayable by half-yearly instalments oftyrincipalund interest combined. The total amount of the public 'debt looks small for a comparatively large tow'n, but as in many other cities in Australia the public services, gas, electric light, etc., are owned iby private companies and not iby the city. Tn addition, the provision of adequate sinking funds m its -earlier loans has enabled the city to pay off each loan at its due date, and consequently there is no-large consolidation loan to swell the total. The adoption of euch a system, or rather, the enlarging of the present system by the Government would prove not only an advantage to the local 'bpdies, bift would be of material benefit to the Dominion itself. Instead of the loc&l bodies going on the open market with their loans, competing against each 6ther the Government would borrow a large amount each year at a much lower rate than a local body could expert to borrow a comparatively small amount and, taken, in , the aggregate, a very large saving in interest could be effected. If the matter had been taken in hand, say ten years ago, thousands of pounds would have ■been saved to the Dominion, and locat bodies jajulil not now toe faced -with the ( necessity of_ going upon an abnormal market to raise new loans for the repayment of old loans falling due. I would recommend that the matter be brought under the notice of thel Minister of Finance, and that other municipal bodies'be requested to co-operate with the Council in an effort to induce the Government to extend the operations of s the Advances Office in the direction ini d'icated-