THE TRAMWAYS.

Press, Volume LXI, Issue 18571, 22 December 1925, Page 15

THE TRAMWAYS.

• * BOARD REPLIES TO BURGESSES. QUESTION OF RESERVE FUNDS. At yesterday's meeting of the Tramway Board the chairman, Mr H. Pearce, submitted the following memorandum in reply to a letter from the committee of the United Burgesses' Association, embodying the Association's recent criticisms of some of the Board's financial provisions:— The Board supplied the Burgesses' Association with considerable informaj tion respecting -tramway reserves. The ! Association has sent in comments thereon, to which I wish now to briefly refer. The Association's contention is that far too much money is being set aside by the Board for depreciation and sinking fund, and that nine years hence the ratepayers will have a tramway system worth probably £2,000,000 absolutely free of debt. I wjsh I could take the same rosy-tinted view of the position. The Board 's own sinking fund is being built up by annual appropriations of I per cent. Allowing for compound interest earned on this sum, it would take about 70 years to wipe off the loan liability. A Wasting Asset. A tramway system is essentially a wasting asset, subject to heavy depreciation. I put aside for the moment the possibility of complete obsolescence if newer and better means of public transport come into use, involving the complete scrapping of a system on which nevertheless a big debt remains. Assuming that no provision is to be made for obsolescence and that the present system will always remain modern and up-to-date, the question ia how much should be set aside to provide for the inevitable replacement of the various parts of the undertaking when they are completely worn out. I think that the Government should make somo pronouncement, if not an order, which would apply to all municipal trading concerns. The Board asked the Government so to act, but with no result. As the Government declined to act, the Board has on two occasions sought the advice of independent experts—Mr Ferguson, of Wellington, an engineer of repute, and Mr Clark, a public accountant, of the same city. Later the Board .-conducted an exhaustive investigation. The cost of each item in each year since the commencement of the system was taken, 708 different items of assets resulting. The Board's engineer estimated " how long each of those 758 items might be expected to last. Some had already been worn out. Outside actuaries were then able to arrive at the amount which should bo set aside each year, which, with compound interest, would be sufficient to replace the worn-out item. The Board's present policy is based on that j report.

Crucial Period Not; Arrived. It is misleading for our friends of the Burgesses' Association to quota the small sum that has already been withdrawn from t the funds for replacement purposes, because the crucial time has not yet arrived. The system is now about eighteen years old, and very much heavier withdrawals will be necessary in the near future than in the past. It must bo remembered, too, that the cost of replacement is now much higher than when the system Was laid down. The Board has obtained legislative authority ,to borrow -the difference between original cost and replacement cost, and relieve the renewal fund to that extent. It has already used this power to a small extent, and it may be necessary to do so again. It may* interest our friends to know what the Glasgow Corporation Tramways, regarded for years as the model municipal system of tho world, sets aside for depreciation and sinking fund reserves. (By the way, Glasgow last year reported a deficiency on operation of £80,276, but it did not pro--ceei to make this good by reducing its reserve appropriations as is recommended by our friends of the Burgesses' Association, although its reserves are much more substantial than in Christchurch.) With a total capital expenditure of £6,500,207, Glasgow set aside last year for depreciation, renewals, and sinking fund, £535,568, or a shade over 8 per cent whereas Christchurch, with a capital expenditure of £1,195,635, asked its revenue account to set aside £39,251, or a shade over 3 per cent. Leeds is often quoted locally. The last balance-sheet for that place shows 6 per cent, set If it should happen that in 1934, when the bulk of the loans fall due, it is found that the depreciation reserves are more than sufficient, the Board has Bower to use them to supplement the present, small sinking fund, which would unaided take seventy years to extinguish the loan liability. • Adequacy of Beserves. As this question of the adequacy or otherwise of reserves is continually being disputed, I think the Board should a<rain ask the Government to set up a Commission which would settle the question so far as it is possible to °lf °the result was that the Board could relieve its revenue account of these appropriations, and yet be fair to the generation to come, no one would be better pleased than the members of the The' Association considers that new works should not be paid out of revenue, but that loans should be raised. Our friends have overlooked some of the information supplied them. No camtal expenditure is ever debited to revenue account. Up to 1921 some of the renewal reserves were used in the undertaking, as permitted by; the Act but this ceased in that year, when appropriations for depreciation were reduced. All new works are now paid for by loan moneys. Workshops. „ The Association asks for information respecting workshop costs. They are as follows: — Land w ~ 9,877 Buildings .. •..■ 47,787 riant .« ~ 20 ' 675 "Wages paid per annum . • 19,994 The old shops, built in 1905, had for long been too small, and some of the plant had become obsolete. The stores accommodation designed for these early year requirements had also become woefully inadequate. The locker accommodation and dining facilities for workmen were not cxeditaole. There was not sufficient roof cover for the constantly increasing number of ears. It was fortunate that the only large piece of land, left in the city was immediately opposite the old workshop, which is now wholly used as a ear shed. This the Board secured, the price being .fixed by assessors. There ia more land than is immediately required, but the Board had its eye on the future in this respect, as it did ■when the buildings were constructed. The car shed staff has been fully employed on special renewal jobs, as well as on ordinary repairs and maintenance. It has already recently built two bus bodies, and has three more on the stocks. It is also constructing two electric car bodies to the same plan, and at the same time as eight being constructed outside. > When, these