Evening Post FRIDAY, JUNE 3, 1904.

Evening Post, Volume LXVII, Issue 131, 3 June 1904, Page 4

Evening Post FRIDAY, JUNE 3, 1904.

MUNICIPAL FINANCE. ♦ .

Tho wider, ephero of activity of municipnlitiwi throughout tho British Empire, tho rapid growth of municipal trading, and tho cotiHuquent largo increase of debt, give prominence to questions of municipal finance. In our own cam wo have the municipality engaging as tramway proprietors, involving a largo increase, in the municipal indebtcdiwofl. In dealing with tlio matter it is as well to distinguish between the. undertakings— tho unproductive and tko reproductive. Among the unproductive may be- clawed parks, public garden*, etc., while of Uk> reproductive wo luive waterworks, gasworks, and tramway undertakings. The particular financial question involved w with regard to the trading concern*, for which the municipality lm« obtained tho oapital by borrowing. What or© the principles on which an cquit&blo distribution of this initial burden is to be mad* its between tho present and future generations of citizens. ? Tho practice in England, according to the Select Committee on Repayment of Loans, which reported liuib year; is to fix a period for tho repayment of debts, so that for each loan* there i« a statutory sinking fund. Many factors are considered in fixing these)>eriods for different undertakings. It is recognised to bo unwise and unjus-t, even if it wore practicable, to burden tho rutepny«r« of ono decade with tho whole coat of Viiccewmry or us»>lul under taking which will benefit tho future ratepayers quite as much as, if not more than, it will benefit tho present. Ou the otl»er hand, it i« almost n» important a principle that* tko period of repayment .should bo kept us short ns is consistent with efficient work, in order that tho ratepayers of tho future, who arc naautued to have equally great Inska before them, may not be hampered by repayment of debts for works instituted by their predeceeßOMs. The principle accepted at Homo is that no debt should outlast tho useful life of tho works for which it is contracted, possibilities of obsolescence as well a« wear and tear ontering into tho calculation. In a case Hko tnunways, where the useful life is comparatively short, that lifo i« practically tho solo determinant of tut sinking fund period which the Govern* mont lays down ; while m cases like park 3 or waterworks where tho useful lifo may be indefinitely long, tho principle of not exceeding two generations is the real determinant. No serious objection can be raised against these- rules and principles so long as tkey are limited in their application only to certain classes of undertakings, such, for inbtnnce, us parka, : market winces, and reproductive undertakings like waterworks, winch are almost permanent, in character if repaired year by year out of revenue, but when ap- ! pTied to ttamwuy», ga&works, electric lighting plant and shnilur municipal enterprises there is something more to be said. Our own municipalities and local bodies provide sinking funds, but is this suflieieht in the case of trading ventures? Fot 'instance, what is the position with regard to tramways, whicli, admittedly depreciate within <i mußMirnblfi period of time? Is it not advisable to have a depreciation fimd as well us a sinking fund? If the municipality decides to do without the former, then at tho close of the sinking fund period, which would probably coincide with the lifo of tho undertaking, tho loan would be repaid and thn subject would bo worn out or obooleto. The municipality inus.l borrow afresh for the aims undertaking, and this process of borrowing and paying back at certain intervals will be indefinitely prolonged, wfiilo now opital will bo required for extension of plant. , Wheie an adequate depreciation fund is kept in addition to tho sinking fund, »t the end of the period (he whole debt will bo p<«d off by i lie sinking fund, and the plant wiirbe up to its original value, or the money in the depreciation fund toother with tfie then value of the plant will bo equal to 111© original bum bor-

rowed. The argument advanced in favour of an adequate depreciation /uml being provided i.s (hat i-vciy bu.sinewi principle deniaiuKs that once an undei taking is .started, wherever tho initial capital cumes fi oin, or on whatever terms it may be buiipwed, tho plant .should be maintained at, its full value out of icvenuc ; and whcio this is impossible- by mere repuiis year after year it inu.sl. bo done by means of n. depieciation fund. It m.\y bo hero mentioned tlint in Scot hind tho practice of the municipalities its to provide a full depreciation fund, liut the practice is not at all genciul in Kn^lnml. It is urged by thorn} who do not favour tho provision of n depreciation fund thai sinco the lifo of the subject is tho main factor in fixing the sinking fund period therefore the sinking fund is tho depreciation fund. If you ael si-side a depreciation fund in addition to tho sinking fund the life of the subject is taken into account twice over, and tho undertaking is thus handicapped as no private company would be. Which of lhe.se views are to bo accepted as sound municipal fiiiiince? Kvery municipal leproductive undertaking subject to .depreciation which ordinary anniii'il expenditure on repairs cannot obviate, ought on business principles to set aside an adequate depreciation fund.' But then this would be unjust and unfair to the first generation if it has also to pay a. sinking fund biiK-ed on the life of the subject. Care muxt bo taken not to confound repairs with renewals-. Tho lermirs should be effected from revenue, bub they cannot .prevent depreciation in certain undertakings — tram-lines, for instanre — for tho lime canes when complete icnewal of some part is necessary. Ono authority in discu«s)ing this mailer icniiirk.s : "The fund ion of a dcpieeiation fund is clear ; it is required in certain undertaking's where the annual expenditure- on repairs does 1 not. balance tho lo.s-s of value due to wear nnd tear, and such factois as obsolescence. Its function is maintenance of value where tho disbursements foi 1 repairs can not by the nature of i t.lio plant obviate shrinkage of value, and it should, therefore, be of such a clfarmctcr that tho value of the plant plun the depreciation fund is always equal to the original capital expended. The function of a sinking fund is to repay debt ; but the length of the period may be fixed in "ach ease by a vniiety of considerations." Id is suggested as a way out of tlio difficulty to insist upon a deprooitttion fund in every leproductive undertaking in which maintenance of value is impossible without it., and at, tho same time to have n winking fund which is not limited to the life of the subject;. In this way a municipality may Hproad tho repayment of its debt for a particular undertakinct over a convenient period of 3 p earfl. nnd not rcquiro Again to borrow capital for itA-except, of course, where a larpren extension is to bo made. Managing the finance of ' the commercial undertakings of our municipalities is a matter for serious consideration.