TUESDAY, JANUARY 10, 1911. TRAMWAY DEPRECIATION FUND.

Press, Volume LXVII, Issue 13937, 10 January 1911, Page 6

TUESDAY, JANUARY 10, 1911. TRAMWAY DEPRECIATION FUND.

Tho question is again being raised— and very properly so, we think—as to -whether the amount at present allowed in the Christchurch tramways accounts for depreciation and renewals is sufficient, and on the motion of Mr CM. Gray at yesterday's meeting of the Tramway Board, it waa resolved to refer tho matter to the Finance Committee for a report. The present policy is to transfer annually to a Renewals Fund 11 l>er cent, of the loan moneys, which fund is invested for the tjmo bein£ in the Board's own -Undertaking, -without interest, and to pay over a like amount a* Depreciation Reservo Fund to Special Cornmission«rs,. ■with instructions to invest in interestbearing securities. This is much less than tho amount considered necessary by exports, and less than is actually get apart in the caee of munioipaliyowned tramways in England. As to what is a fair sum to allow for depreciation on electric tramways, it must b© confessed that experts differ. Tlie object of a depreciation fund, *we need hardly point out. is to provide for the maintenance of original values, and the replacement of equipment, ways and structures, and all parts thereof when their period of usefulness has run i or, in other words, to maintain tho integrity of the property at all titties. The current repairs to machinery, etc., is considered part of the operating ex-

penses, but all machinery and structures are subject to wear and tear, so that in time it becomes necessary to replace the old with new, and this cost should be> met oufc of a depteciation fund. In the. case of electrical undertakings, the fact that appliances become rapidly out of date and may have to be "scrapped" for want of efficiency, long before they are worn out in the ordinary sense of the word, has also to be borne in mind. Taking an American example in order to show the judgment of experts as to what ought to be allowed, we find that the Chicago Union Traction Company allows 7.75 per cent, for depreciation on track and roadway, 5 per cent, on rolling stock, 6.6G to 8.50 per cent, on electrical equipment, 6.66 per cent, on power-plant equipment, and 2 per cent, on buildings and improvements. To take a municipal example, which is generally, regarded as setting atf example deserving to be followed, we find that the Glasgow City Tramway Department sets apart on an average about 7 per cent, per annum for depreciation. By comparison with these leading cases it will be seen that the amount at present set apart by the Christchurch Tramway Board is far too low, with the result that the accounts are fallacious to the extent that they show a profit, whereas, if depreciation were allowed on the scale adopted elsewhere, {hey would exhibit a deficit. The matter was dealt with at some length by the chairman, Mr H. Pearce at the annual meeting in 1909. He then argued that it was not the duty of the present ratepayers to hand over to the next generation the tramway undertaking absolutely free of debt. Our duty is complied with, he said, if we provide that the actual value of the undertaking, after allowing for the depreciation which must take place, is hot less than the amount of liabilities at the time. He then quoted figures to show that if the sinking fund of $ per cent, is invested at 4 per cent, without breaks for tho 25 years, and if the depreciation fund is also invested contitthotisly at the same rate, the liability remaining on tbe .loans will Amount to only £68,t05. He further thought it fair to assume that the undertaking coating initially £443,900 would be worth £68,000 at the end of the period named, assuming that no great revolution in passenger locomotive methods takes place in the interval: It may perhaps be-fairly conceded that a municipal tramway does not stand on quite the same footing as a joint stock undertaking. In the latter case it is necessary that the capital of the shareholder!* should be preserved absolutely intact, lit the case of a municipal venture it is quite open to argue that the next generation should be called upon to bear part of trie burden shouldered by the ratepayers of to-day. On the Other liand, it seems to us that Mr Pearce assumed a little tbo much in taking it for granted! thai the Board's funds would always be "invested without a break at ioiir per cent., that the renewals fund would he Sufficient to replace all plant, etc., in heed of repkeetnent, and finally that passenger locomotive methods, which have been so greatly revbltltiotiised in the l&st 25 years, will show rto great revolution in the next 26 years. Tlie danger of keeping the depreciation fund too low is tha£ it misleads th£ public by giving the tramways a false appearance of prosperity, and so encourages demands for reductions in fares, further extensions, and so forth, which would be seen to be unjustifiable if the accounts were kept on a proper basis. We shall hot be surprised if even Mr Pearce, in the light of further experience, has seen l-eason to modify the views he expressed in 1909, and we are glad, therefore, that the whole subject of depreciation is once more to be brought under exhaustive ' review by the! Finance Committee, ami subsequently, we presume, by.the Board as a whole.