TRAMWAY RESERVES.

New Zealand Herald, Volume LXIV, Issue 19675, 29 June 1927, Page 10

TRAMWAY RESERVES.

Preparations arc being made by the City Council for a poll on proposals to borrow £500,000 for tramway extensions. The loans already raised for tramway purposes amount to £1,795,000, at rates of interest varying from 5 and 5.j per cent, for the greater part of it to 0 per cent., the annual charge being £93,<155, an average of 5.20 per cent. \\ hen the undertaking was purchased by the council in 1919 it decided to set aside a sinking fund of per cent., which would ijppay the original loans, £1,250,000, at their maturity in 1910. For the remainder of the debt the sinking fund has been reduced to 1 per cent. These reserves now amount to £311,4*23, interest on the investments having reached the figure of £II,BOO. Until the last year the payments have been maintained, in 1925-26 by absorbing the reserved profits in the net revenue account. But the latest accounts show that capital, depreciation and accident reserve charges have created a debit balance of £36,652 —which would have been greater had the revenue not been relieved by raising a loan for the bulk of the maintenance expenditure. This year the sinking fund charges will be ' about £36,690. The original provision was, no doubt, based on sound principle's, for although it may seem unnecessary to discharge in 21 years the whole capital liability of a commercial undertaking, the system was 17 years old when it was acquired, and provision had at least to be made for the obsolescence of the rolling stock, even though other equipment might be rehabilitated, as was done by heavy expenditure from revenue for some years. It may be that under the changed conditions a 21 years sinking fund for so large a proportion of the debt may not be necessary, and that relief could be gained by reducing the whole sinking fund to 1 per cent., and providing adequate depreciation reserves for cars and other equipment which are not replaced in the course of maintenance expenditure. That policy has already been adopted in respect of the buses. In any event there is something anomalous in raising a hew loan to repair depreciation in one part of the system and transferring non-existent, profits to an other depreciation fund, thus creating a deficit which the undertaking has no reserves to meet. This aspect of the tramway s finances cannot be overlooked. Tfoless the committee's recommendations convey a convincing assurance that the losses of the last two years can be stopped at once, and earnings sufficiently increased to extinguish the deficit within a reasonable period, the council will be faced with the dilemma of reducing, if not raiding, the sinking funds or of levying a heavy rate to cover the deficiencies. Neither alternative c;in be commended to ratepayers with much confidence ol its being cordially received.