CITY SINKING FUNDS.

Press, Volume LXVI, Issue 20036, 18 September 1930, Page 10

CITY SINKING FUNDS.

PROVISIONS OF REJECTED BILL. INCREASE OF EARNING POWERS From a statement prepared on behalf of the Christchurch City Sinking Fund Commissioners, relative to tho Christchurch Sinking Fund Commissioners Bill, recently rejected by the Legisla* tive Council, it would appear that the real import of its provisions have been misunderstood. The statement, which follows, sets out clearly the objects of the Bill: References to tho Christchurch City Sinking Fund Commissioners Bill, which was before the House of Eepresentatives recently, have appeared in tho newspapers, tending to give the impression that the aim of the Bill was to facilitate borrowing and to encourage extravagance. One comment appeared to the effect that Sinking Fund Commissioners should live within their income. Reasons for Borrowing. In point of fact, Sinking Fund Commissioners mako no expenditure whatever, their functions being morely to invest moneys and repay the loans, when due, out of the accumulations of such moneys. Having no borrowing powers the Commissioners must, under existing conditions, always have idle moneys at the bank. It is the accumulation of the funds handed to the Commissioners, plus the interest on these funds, which provide the money to repay the loans when they mature. The investments fall due from time to time, and are repaid to the Commissioners, and then have to be re-invested. Interest comes in at varying dates, and in small sums, and is as soon as possible lent out again. Under the existing system, with no borrowing powers, these recoipts from interest, repayments of investments, and funds handed to the Commissioners, have to lie ity is available, but there is not sufficient sum is available to take up an investment. Often a satisfactory security is available, but there is not sufficient accumulated to take it up. Sometimes, too, mortgages are paid off, unexpectedly, and the money thus may be idle until a fresh investment is obtained. Again, when one of the loans for which its sinking fund is being accumulated is about to fall due, it is necessary to realise large sums, and hold them in the bank, either at a low rate on deposit at call, or more often idle, in order that the cash will be available to pay off the loan on due date. Under the present system the opportunities of picking and choosing first-class securities are restricted, owing to the Commissioners having no borrowing powers to obtain money in anticipation of revenuo known to be coming in. Had they the borrowing powers sought they could take up a security worth having when offered, and thus provide immediate investment for tho moneys coming in when received.

The suggested borrowing powers would have enabled the Commissioners to take deposits repayable at call, up to a very limited extent (in point of fact, one year's income), which would have enabled them to take up many excellent investments which they now cannot do, and which would have saved very considerable loss of interest owing to idle credit balances. Were the Bill to become law every penny in th» Commissioners' hands would earn interest continuously, even including small amounts of income received as any moneys, whether principal or interest, would, on the date of receipt be applied in reduction of the deposit moneys. Profitable Borrowing. It is a further point that, actually, deposit moneys would almost invariably be obtainable at a rate of interest from 1$ to 2 per cent, below the rate of interest being earned by tho Commissioners on their investments, so that the borrowing would result in a profit in itself. This, however, is regarded by the Commissioners as merely an incidental result of the proposals, and played little part in the arguments which prompted them to promote the Bill in the first instance.

The proper investment and the protection of the funds in the hands of the Commissioners is in no way endangered by the powers sought for under the Bill. The Commissioners' accounts are subject to the Government audit and the moneys must be dealt with according to the Act which governs the Commissioners. The Bill merely provides a means, on the one hand, of the Commissioners earning more money for the repayment of loans, and on the other hand affords,-up to a limited amount, an absolutely safe temporary investment for investors having idle moneys awaiting investment. The powers sought aro that the Commissioners be allowed to borrow by means of bank overdraft, or by temporary loans on deposit, up to a sum equal to one year's income from the investments of the Commissioners, and to permit of trustees and others lending trust moneys to the Commissioners under these borrowing powers. It is estimated from an examination of the accounts that there is an actual loss to the City of not less than £3OO per annum, owing to the present system. The importance of this to a body carrying on its operations for # long periods may be seen when it is stated that a sum of £3OO per annum invested at compound interest at 5 per cent, per annum, which is practically one per cent, under the rate earned by the Commissioners, will produce in 40 years a total sum of £36,000.