SINKING FUNDS.

Manawatu Standard, Volume LII, Issue 269, 13 October 1932, Page 4

SINKING FUNDS.

RESTRICTION ON WITHDRAWAL. PROTECTION OF PUBLIC TRUSTEE. Per Press Association. WELLINGTON, Oct. 12. The Local Authorities Sinking Funds Bill was introduced by Governor-Gen-era l’s message when the House of Representatives resumed this evening. Rt. Hon. G. W. 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 previous legislation brought down by the Government preventing the liquidation of these securities, the Bill proposed thnt no alteration should be made in investments until 1935. Mr .T. A. Lee 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 the Public Trustee had invested the sinking funds of local bodies in rural securities. Some local bodies now claimed thnt they could get higher interest if they could withdraw these funds, but the Public Trustee was not in a position to repay them. The Bill would not cause any increase in interest ; it would only place the Public Trustee in the same position as a mortgagor. '

Air H. G. R. Afasnn said the Prime Afinister's explanation of the Bill made an obscure position more obscure. He couid 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. AA’hy should local bodies be placed in a position of servitude? Air Forbes said that they could not make any change until 1935. Air Alason: AYliy should that be the case? No one wishes to see the Public

Trustee circumscribed, but when it comes to compulsion, 1 think it is going too fpr. Mr D. G. Sullivan suggested that the Bill bo sent to the Local Bills Committee. Ho was not prepared to say it was not justified, but he thought it a fair thing that local bodies should have the opportunity to put their side before the committee. Mr 1). W. Coleman supported this view. The Leader of the Opposition (Mr H. IS. Holland) also agreed, and said that if Air Forbes would allow the Bill to be read a second time pro forma it could then be sent direct to the committee. Air Forbes said 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. tendency on the part of local bodies to withdraw money from the Public Trustee to invest n.t a higher rate of interest elsewhere the Bill would prevent that. The Bill was read a first time. MEASURE EXPLAINED. An official explanation of the Local Authorities Sinking Funds Bill, issued after the first reading, stated that the Public Trustee was the 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, until recently, had been 51 per cent. Tbe common fund rate of interest had been reduced to 4 per cent, some time ago and the result was that some local bodies wanted to withdraw their funds from the Public Trustee. In receiving instalments of the sinking funds the Public Trustee allowed interest from the time the sums were paid to him. This meant that they commenced to earn interest immediately, whereas if the sinking fund commissioners invested them themselves they would have to wait for a suitable investment, especially if the sinking fund were a small one.

Placing sinking funds in a common fund gave local bodies the benefit of a regular rate of interest irrespective of securities in which 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 tho 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 he released at the date of maturity of the loans. Tho action of local bodies in asking for release of sinking funds at the present time meant that tho 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 legislation in the Alortgagors’ 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 relief legislation on April 1, 1935. Two principal questions are dealt with in the Bill. Clause 3 imposes the temporary restriction on rights of local bodies to withdraw sinking funds from tho 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 tho appointment has heen expressed by deed or resolution to be irrevocable or to be revocable only on certain specified conditions, the appointment sluill ho irrevocable except in accordance with any specific conditions provided for. Clause 5 relates to tiie 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. The clause provides that no such Order-in-Council shall he granted at any time before April 1, 1935.