LOCAL BODY LOANS

Hawke's Bay Tribune, Volume XXII, Issue 257, 13 October 1932, Page 9

LOCAL BODY LOANS

SINKING FUND BILL SAFEGUARDING PUBLIC TRUSTEE. AGAINST HEAVY WITHDRAWALS. (From Our Special Parliamentary Reporter). Wellington, Oct. 13. The principal object of the Local Authorities Sinking Fund Bill, which was introduced into the House of Representatives last night, is to safeguard the Public Trustee from heavy withdrawals of moneys in common fund deposits by local bodies who have appointed the Trustee their Sinking Fund Commissioner.

The official explanation of the Bill, given after the first reading, stated that the Public Trustee was Sinking Fund Commissioner for a large number of local body loans, and he had been giving them the benefit of the common fund rate of interest, which up to recently had been 5J per cent. The, common fund rate of interest had been reduced to 4 per cent, some time ago, and tho result was that some local bodies wanted to withdraw their funds from the. Public Trustee. The Public Trustee allowed interest from the time the sums were paid to him; this meant they commenced to earn interest immediately, whereas if Sinking Fund Commissioners invested them themselves they would have to wait for a suitable investment, especially if the sinking fund were a small one. The placing of sinking funds in the common fund gave local bodies the benefit of a regular rate of interest irrespective of the securities in which the common fund moneys were invested. At the present time losses on mortgage investments were met out of the common fund but local bodies did not lose the principal. They were only suffering a reduction in the rate of interest, whereas if their own Sinking Fund Commissioners had invested in mortgages their losses would probably have been heavier. . The Public Trustee had arranged for sinking funds to be released at the date of maturity of loans. The action of local bodies in asking for the release of sinking funds at the present time meant that the Public Trustee had to realise on his investments in order to accede to their demands. At the present time, however, he could not realise on these investments on account of the legislation in the Mortgagors’ Relief Acts and the National Expenditure Adjustment Act. The present Bill was therefore designed to enable him to refuse to pay out sinking funds until the expiry of the relief legislation on April 1, 1935. The principal questions are dealt with in the Bill. Clause 3 imposts the temporary restriction on the rights of local bodies to withdraw sinking funds from the control of the Public Trustee. Clause 4 states that where any local body has appointed or appoints the Public Trustee as Commissioner of any sinking fund and the appointment has been expressed by deed or resolution to be irrevokable or to be revocable only on certain special conditions, the appointment shall be irrevocable except in accordance with any specific conditions provided for. Clause 5 relates to the changing of securities. At the present time a local body can apply for an Order-in-Council to have its securities taken out of the common fund and separately invested. Tho clause provides that no such Order-in-Council shall bo granted at any time before April 1, 1935. BILL READ FIRST TIME. The Local Authorities Sinking Funds Bill was introduced by Governor-Gen-eral’s Message when the House resumed this evening. Mr Forbes said that the bill was brought down to protect the Public Trustee in relation to funds invested by him for local bodies. Owing to tho previous legislation brought down by tho Government preventing the liquidation of these securities, the bill proposed that no alteration should be made in investments until 1935. Mr T. A. Lee (Grey Lynn) asked if, in the event of a local body wishing to withdraw its funds, the Government would have to take steps to create credit to enable the Public Trustee to remain solvent. Mr Forbes said that under certain Acts tho Public Trustee had invested the sinking funds of local bodies in rural securities. Some local bodies now claimed that they could get higher interest if they could withdraw these funds, but the Public Trustee was not in a position to ropay them. The bill would not cause any increase in inter-

est; it would only place the Public Trustee in the same position as a mortgagor. Mr H. G. R. Mason (Auckland Suburbs) said that the Prime Minister’s explanation of the bill made an obscure position more obscure. He could see no reason for the bill. It would prevent any change being made —that was to say, local bodies must invest their money with the Public Trustee. Why should local bodies be placed in a position of servitude. Mr Forbes said that they could not make any change until 1935. Mr Mason: Why should that be the case? No-one wishes to see the Public Trustee circumscribed, but when it comes to compulsion I think it is going too far. Mr D. G. Sullivan (Avon) suggested that the bill should be sent to the Local Bills Committee. He was not prepared to say that it was not justified, but he thought it a fair thing that local bodies should have an opportunity to put their side before the committee. Mr D. W. Coleman (Gisborne) supported this view. The Leader of the Opposition also agreed and said that if Mr Forbes would allow the bill to be read the second time pro forma it could then be sent direct to the committee. Mr Forbes said that the bill was only being introduced, and local bodies would have ample opportunity to see what was in it when it was printed. The Government had tied up the investments of the Public Trustee by its legislation, and all that the bill proposed to do was to safeguard his position until 1935. If there was a tendenev on the part of local bodies to withdraw money from the Public Trustee to invest at a higher rate of interest elsewhere, the bill would prevent that. The bill was read the first time