Evening Post. THURSDAY, DECEMBER 5, 1907. MUNICIPAL ACCOUNTS.

Evening Post, Volume LXXIV, Issue 136, 5 December 1907, Page 6

Evening Po st. THURSDAY, DECEMBER 5, 1907. MUNICIPAL ACCOUNTS.

The abstract of audited accounts and the general balance-sheet of the City Corporation, together with tha tramway revenue and balance sheets for the year ending 31st March last, have been issued. The information provided is instructive and suggestive, and is a key to gauge- the progress of various municipal undertakings. In the past we have folt it naccssavy to criticise the form in which tho accounts have been presented. That our views were justifiable is to some extent borne out by tho minor alterations, making for greater preciseness, which have been introduced. Tho general plan, however, is still a little old-fashioned. It may at once be conceded that the form in which tho municipal accounts must be presented is provided for by tho Act of 1900. This Act may bo well adapted to tho requirements of small towns and county councils, but its provisions are not suitable for tho four principal cities of the Dominion, whose municipal accounts have now attained such vast dimensions. Since this Act was put on the statute-book a great development in municipal enterprise has been witnessed, and the success which has attended early efforts in this direction has encouraged many municipal councils to embark upon ambitious projects, which necessitate a great expenditure of borrowed money. Hence there is. required a. more modern system than was contemplated by the Act. Somo reform is possiblo as regards the excision of the tramway accounts* from tho district fund. It transpires that Dunedin has succeeded in convincing the Auditor-General that under the j Tramways Act such a power is vested jin the municipality ; wo may therefore anticipate that Wellington will take advantage of this precedent, and in its next general account will exclude thereceipts and expenditure* of tho city tramways. Wo notico that "receipts" is .low substituted for the incorrect word "revenue," which is an improvement. The general balance-sheet siul omits "interest accrued" as a liability; the tramway balance-sheet, however, has ils "accrued interest" properly charged up as a liability. It is, perhaps, us well that the assets are not swollen by the inclusion of the town belt, parks, and reserves, The balance-sheet in its present form is of comparatively small value, but it is difficult to see how it can bo improved. Take for example such an item on the assets sido as water supply, capital expenditure £36,855. This pjoionjit may, or may notj be te-^

presented by pipes, reticulation, pumping plant, and so forth, for it is almost impossible to arrive at the value, of such assets. The same applies to the item, public lighting, capital expenditure, £19,336. Tho tramway portion of tho accounts is a. model of lucidity. It, would appear 'that every possible item that could reasonably be included has boen charged to revenue, which method tands to reveal a genuino surplus and not a bookkeeping fiction ; apparently tho rule has been, when in doubt charge revenue and not capital. It is satisfactory to note that whilst the working expenses per car milo show a, decrease, the earning power has increased. After deduction of interest, sinking fund, depreciation, and .writing off 4 per cent, on tho preliminary expenses, there is a net profit remaining of £2495 8s 4d, which has been carried to appropriation account. The always difficult problem of depreciation has been very fairly faced by charging at the rate of 2|- per cent, on tho entire installation. This lumping together of road-bed, overhead equipment, machinery, and rolling-stock really permits a more liberal provision to bo made than if depreciation were to be charged separately against the different items of the equipment, and' varying accordingly to their durability or perishability. With regard to loans something might bo done to eliminate the loss of interest that now lakes place. For instance, Loan No. 54; out of tho £235,000 borrowed for water works, destructor, and public lighting there ia still on deposit with the council's bankers £36,500 at 2 per cent, and £42,000 at 3 per cent. As tho city is Eaying 4 per_ cent, to the holders of its onds there is a loss in interest alone of £785. Again, Loan No. 50, Melrose ' tramway oxtension : £22,000 is still un- i expended out of the £77,000 raised, and jn this case the difference between tho interest received from the fixed deposit j •of £22,000, and what the city has to pay is £245. Tho Harbour Board's j arrangements permit it to obtain its i loans as required, and thus avoid any | waste in tho shape of interest, an examplo which might be worth tho council's attention in future financing. If J the council and the ratepayers aro to j reap the f uIL benefit of the automatic j actibn of compound interest, tho various | sinking funds deserve greater atten- j tion. Up to quite recently the annual payments to the sinking funds d.id not amount to very much, but tho extensive borrowings of the last five years have changed all that, and the investment of ! the larger annual payment now demands come measure of financial ability. It is perhaps desirable that when municipal sinking funds are in, part invested ! in mortgages, particulars of tho value and the location of the security should be supplied. This is the general practice in America, France, and some other j countries, and it is only a foolish sentiment which prevents its adoption here. Also, it is obvious that for actuarial calculations, interest should be paid exactly on tho due date and immediately re-invested, otherwise the essential features of a sinking fund aro lost sight of. But such is almost impossible in the case of mortgages, where not infrequently the interc&t is in arrears. It might in the long run prove more satisfactory if, in place of lending considerable sums on mortgage, they were invested with the Public Trustee at somewhat lower interest. Whero they go on compounding quito automatically mortgages no doubt are a perfectly legitimate field of investment for land, pastoral, financial, ' and building societies, but are not quite the type of security to which municipal sinking funds should bo diverted.