City Finances

Hutt News, Volume 18, Issue 44, 23 May 1945, Page 5

City Finances

REPLY TO Mil. SCHOLEFIELD

CITY TREASURER S VIEWS

In connection with the article by ' Mr. Scholeiield in a recent issue of the "Hutt News" the City Treasurer advises as follows: — In 1943 the General Account surplus of revenue over expenditure was £12,588 and not £53,261 as stated. Of this sum £1,000 was transferred to the Hospital Account to reduce the accumulated deficit, and £9,000 was set aside to form the nucleus of a fund to purchase land and buildings in connection with the civic buildings proposal. The 1944 General Account surplus was not £90,430 as stated by the correspondent, but £8,290. The main source of Council's revenue is rates, and in'the year ended 1944, the total General Account rates revenue was £44,588/14/2, or £45,841/5/10 less than (the surplus arrived at by Mr. Scholefield. Plant Account: The original intention of the Plant Account was that the lorries, grader and other mo tor equipment should be hired to the various works on which they were engaged at an hourly rate sufficient to pay the running cost, repairs and generally maintain them in the best possible condition. Any surplus would be transferred to a fund which would assist in the purchase of new equipment. The possibility of each vehicle earning sufficient in its life-time to enable it to be replaced would mean that the value of each service that the vehicle was engaged on, would have to be reduced to allow provision for extra profit for the benefit of the Plant Account, while keeping within the , estimate limit. The prophetic accumulation referred to has not taken, place, but there is £1,000 in the fupd in four years, and this, after purchasing out of it £1,430's worth of trucks, £7 6 6/5/6's worth of cars', petrol engines, pumps and other new : equipment for £1,460, (a total of i £4,656). This is after complete overhauls, running costs and general depreciation, averaging no less than ; £6,304 per annum, have been allow- ; ed for. The statement in the 1942 report i is correct, and substantial purchases of plant have been made without ad- i ditional cost to ratepayers. Municipal Accounts are sometimes ] criticised on account of a lack of ] depreciation fund reserve, but such j criticism is founded on a misunder- \ standing of the difference between j the commercial and municipal sys- j tems. In. commercial accounts, par- ] ticularly those of limited companies, ] it is necessary that the estimated ] loss by depreciation during the ac- j counting period should be charged , against income prior to arriving at the profit figure, since otherwise the latter will be unduly inflated, and to the extent of the loss by depreciation, will consist of capital. If no account were taken of depreciation over the life of the assets, the time would arrive where the whole of the J value of the assets would have been 1 distributed as dividends to shareholders, and new capital would be required for replacements. j The case of the local authority, ( however, is different; the large sum for the replacement in one year of ' the assets mentioned by the Engineer should, in my opinion, be made, by loan, and the annual sinking fund ( redemption of this would be at least equivalent to the depreciation of the assets. This also applies to the building replacement scheme, hut the reason that £18,000 has been < accumulated in two years out of i revenue is because it will be neces- I sary to purchase land and buildings 1 in the proposed vicinity some years i before any loan for the replacement 1 of civic buildings can be formulated. | The basic principles of depreciation 1 are based more on trading undertake j ings than on non-trading muncipal .] concerns, ] Because of the tremendous drain •< on its finances, occasioned by extra- ] ordinary development unequalled in < New Zealand, it is not practicable, i and certainly not in the best inter- ( ests of the public to create reserve funds l'or the replacement of capital equipment out of revenue at the ex- ' pense of some more urgently needed 1 services. 1 The reference to the Petone Borough Council having built up re- 1 serve funds of £4,000 is worthy of : attention. This sum was transferred •

in total from a General Account surplus last year, and the title of the reserve fund is Property and Plant Purchase and Renewal Account There is n6 record in the Petone accounts of the so-called basic principles of depreciation being enforced, and now Petone, less than one-third of the size of Hutt City, and completely built up, transferred, in one year nearly sufficient to meet the replacement of the whole of its motor plaint; The inference in Mr. Scholefield's concluding sentence is that he; is aware that the hospital increase of £11,000 will, for the first time in six years, have to be borne by the Lower Hutt ratepayers.