LOCAL LOANS

Evening Post, Volume CXXIII, Issue 58, 10 March 1937, Page 11

LOCAL LOANS

WELLINGTON POLL

MINISTER'S COMMENT

RATE OF INTEREST

(Spocial to the "Evening Post.") TIMARU, This Day. The work of the Local Government Loans Board in supervising ihc loan proposals of the local authorities of ihc Dominion was commended by the Minister of Internal Affairs (the Hon. W. E. Parry) in an address to the Municipal Conference at Timaru last night. The Minister staled that it was the policy of the Government to maintain interest rales on the present basis of 3-3r per cent. Mi-. Parry said that while there were many advantages in living entirely within one's income, it was recognised that many, major undertakings would never have been commenced if it had not been possible to finance them from loans. Even with that avenue available it was sometimes difficult to proceed with major undertakings. He had tried to understand the psychology behind the adverse vote which the ratepayers of Wellington gave to loan proposals. Of the five out of six proposals which had been rejected, one was for the extension of the cemetery. "It is necessary, however, to watch that borrowing is of an economic nature and that arrangements are made to repay the borrowed money within a reasonable period, having regard to the continuing utility of the assets created out of the loan money," said the Minister. "It was principally to assist in carrying out these two objects that the Local Government Loans Board was established by an Act of 1926. No doubt in some particular cases the decisions of the board have not met with local approval. I think, however, it is generally admitted that it has served a very useful purpose in assisting local bodies with their, loan finance, and) generally placing the position of the local body debt on a much more satisfactory basis." GROWTH OF DEBT. It was interesting to note, added the Minister, that the total debt in 1916 was £26,045,312 and at March 31, 1926, had risen to £59,419,754. In the years following the institution of the Local Government Loans Board, borrowing operations had slowed down considerably. There had been, however, a gradual increase in the amount until it reached its maximum in 1931 of £72,686,036. Since that date there had been a gradual decline each year until March 31, 1935, the total stood at £71,245,458. It was probable that there had since been a further ; slight decrease in the total, as there had been no material increase in the amount of new loans sanctioned by the Loans Board last year. INCREASED ACTIVITY. In each ofHhe financial years 1934-35 and 1935-36, the amount sanctioned by the Loans Board for new works had been approximately £1,500,000. It was interesting to note that with the return of prosperity, increased activity was evident in the incomplete returns for the present financial year, the amount sanctioned up to January 31 being £1,789,745. It was not the policy of the present Government to restrict 'borrowing for capital, expenditure unduly, as it was recognised that a reasonable amount o£ prudent borrowing was a necessary . feature of local body administration. The debt conversion operations of local authorities, which had .only recently been completed, had also had a beneficial effect ,on local body finance. Of a total convertible debt as at March 31, 1933, of £48,456,645, £43,540,169 had been dealt with at December 31, 1935. The reorganisation of this part of the debt had resulted in considerably reduced charges, while at the same time the Joans had been placed.on a more satisfactory basis. The policy" adopted in the process.of conversion of consolidating numerous small loans had resulted un less numerous loans being quoted on the market, but the consolidated loans, being for larger amounts and secured over wider areas, had had the effect of enhancing the value of local body securities. MQUIDATION OF LOANS. An important change brought about in the, conversion operations was the alteration from the sinking fund basis to the annual redemption of debentures, That method of rearranging debt had been advocated by the Loans Board wherever possible and was no doubt a distinct improvement on the old sinking fund method. In addition to ensuring that the loan would be liquidated within the new period fixed, the scheme had resulted in considerable sums being released each year and these moneys were, of course, available for reinvestment in the new loans now being authorised. There was one aspect of this subject worthy of special comment. The old clays of high rates of interest were a thing of the past. Formerly it had been necessary for local authorities to pay as high as 5J per cent, or 6 per cent., or even 6| per cent, for loan moneys. That obviously constituted a crushing burden on the ratepayers. The present era of low rates of interest was of tremendous benefit to local bodies as well as to other sections of the community. The present .rate being authorised was 3J per cent, and it was the policy of the Government to maintain interest rates on that basis.