RESERVE FUNDS.

Taranaki Daily News, 20 September 1921, Page 5

RESERVE FUNDS.

ELECTRIC LIGHT AND TRAMWAYS. A QUESTION FOR THE COUNCIL. The question of creating renewal and reserve funds was under review by the New Plymouth Borough Council at last night’s meeting, when it was decided to postpone decision till January. The position in respect to this proposal is reviewed by the general manager (Mr. F. T. Bellringer) in his monthly report. He states:—

Up to the end of the past year the council set aside depreciation and renewals funds amounting to approximately per cent, upon the depreciable assets of the electric light department. Under the amendments in the Municipal Corporations Act, 1920, which came into operation on April 1 last, power is given subject to the approval of the Controller and Auditor-General, to establish a renerval fund not exceeding 1A per cent., and a reserve fund not exceeding 1| per cent. There does not appear to be any provision for a depreciation fund.

If a renewal fund is established the council is required to appoint three renewal fund commissioners. Appropriations to the fund will be paid to the commissioners, who are authorised to invest such moneys: (a) In New Zealand Government securities; (b) On deposit at the bank; (c) In any other security from time to time authorised by the Governor-General-in-Council.

To obtain repayment of money from the commissioners for renewal or replacement of plant, the council is required to pass a resolution calling up the money, and to make a demand in writing upon the commissioners, such demand to be accompanied by a copy of the resolution and by a full specification of the works proposed to be done. No such demand shall bo for less than £5OO. unless the fund does not amount to £5OO, in which case the whole fund must be called up. Certain powers are given to the commissioners to obtain expert advice, and the expert may inquire into the reasons why the council proposes to expend the money, and. into the nature and extent of the work proposed to be done. The commissioners may pay the amount of the demand by instalments or may decline to pay except on order of the Supreme Court.

The reserve fund is upon a different footing. Commissioners are not required. The money is paid into a separate banking account, and may be applied by the council for such extensions and improvements of the undertaking as it thinks fit. Until required the moneys may be invested in the same class of security as the commissioners are empowered. to invest the renewal fund. A reserve fund, however, cannot be established unless the council has previously established a renewal fund. The restrictions in regard to renewal funds are therefore much more stringent than heretofore. Previously the investment of the fund was entirely in the council’s discretion. The practice has been to use any part of the fund not immediately required in capital expenditure for which special loans would otherwise be required. .In t\e electricity department the whole of the renewal fund, and also the amounts set aside for depreciation has been used for this purpose.

It will now be necessary for the council to decide whether renewal anil reserve funds shall be established in accordance with the. amendment of the Act referred to.

Under ordinary circumstances the council would have no difficulty whatever in arriving at a decision. The position, however, is complicated by the fact that in the estimates for plant for the hydro-electric extensions provision was not made for certain plant and materials which will be required before the whole of the output from t'he partial scheme can be disposed of. Under the circumstances it will be necessary to consider whether it will be possible to set aside a renewal fund and also to find from revenue the extra capital for the plant referred to. The point is raised now in order that if the council decide to establish the funds in question the necessary preliminaries, including the appointment of the commissioners and the obtaining of the approval of the Controller and AuditorGenera I, may be attended to some little time prior to the end of the financial vear.

In the tramways department there is no renewal fund at present, the borough solicitors having advised that prior to April 1 last such a fund was ultra vires. Both the renewal and reserve fund, however, can now be established subject to the same conditions and restrictions previously referred to. It is therefore desirable that when considering the question of establishing such -funds for the electricity department it should also deal with the question of similar funds for the tramways department. In reply to a councillor as to his opinion on the question, Mr. Bellringer said he felt the council must eventually establish reserve funds in connection with both the electric light and tramway departments, as it was a matter of ( ordinary b usines s,