REASON FOR RULING

Evening Post, Volume CVII, Issue 19, 24 January 1929, Page 12

REASON FOR RULING

SINKING FUND QUESTION

LOAN BOARDS AND THE LAW

It has been suggested that the position in regard to "the recent ruling of tho Local Government Loans Board that tho costs incurred in raising renewal loans cannot bo charged against loan money has not been set out with all due fairness to the Loans Board in tho several references'that havo been made in Wellington and elsewhere to the new point, with the result that the board lias rather been blamed for imposing restrictions which may place a financial burden upon local bodies, which, of course, must pass such burdon on to their ratepayers.

The Loans Board, it was remarked, did not of itself impose these restrictions, but drew tho attention of local bodies to tho fact.that the law imposes tho conditions. Section 43 of the Local Bodies Loans Act of ,1926 states definitely that the Commissioners of any sinking fund can apply only the accumulated sinking fund to repayment of the loan, and charges and expenses of flotation of tbo renewal cannot therefore be met from sinking fund. Furthermore, there is no provision in the following clauses (Section 45) for raising any amount in excess of the principal which is outstanding after accumulations of sinking fund have been utilised.

Tho general practice of tho Local Government Loans Board is set out in its instructions to local authorities, as follows:

" Capital expenditure is not necessarily payable out of loan money, but loan expenditure should be limited to the purposes of capital works, that is, permanent works. In a proper case, however, the board is prepared to recognise the propriety of meeting out of loan moneys certain classes of nonrecurring expenditure (such as expenses attending tlio raising of a loan) which ■do not produeo permanent works."

The Loans Act of 1926 allows costs and charges of flotation to be charged against new loans (as distinct from renewal loans), but note of such intention must be included in the voting paper and in the advertisement of-tho renewal , loan, that ratepayers understand tho position. There is no poll in the case of renewal loans, which are renewed by special order. Flotation charges may be made against renewal loans only by special statutory authority, us was done in the caso of the Makerua Drainage Board Loan Empowering Act, 1027, and the Napier Harbour Board Empowering Loan and Constitution Amendment Act, 1927. . As to tho payment of the first year's interest out of loan moneys, which has boon fairly" general practice on tho part of local bodies for a long timo past, tho board has advised, local bodies that payment of interest on loan money will not be considered desirable, except in. cases where the loan is for revenue-producing assets, such as electrical schemes, possibly such-a scheme as tho inauguration of a public service such as the city milk supply, where interest may bo permitted, pending the commencement of receipt of revenue, but in no case for moro than threo years.