SINKING FUNDS.

New Zealand Times, Volume XXVIII, Issue 5914, 1 June 1906, Page 2

SINKING FUNDS.

COUNCILLOR BISS AND THE MAYOR COUNCIL ADHERES TO ITS POSITION. The Berios of resolutions of which notice hail been given by Councillor Biss came before the City Council last evenin". Councillor Biss moved:— That the following resolutions bo rescinded August Htb, 11)05.—“That all sinking funds be invested upon mortgage of freehold securities at current rates of interest." January 25th, 1000.—" That Hie Finance Committee bo empowered to grant or refuse any application that may bo received for loans of feinting fund moneys." April sth, IMS. —“That the Sinking Fund Commissioners be empowered to invest money from time to (imo as they think fit upon tho purchase ot Wellington City Corporation Debentures." That the Public Trustee be appointed Commissioner for all sinking funds of the Wellington City Corporation as provided for under clause 28, subsection 2, of the Local Bodies Loans Act, 1901, such appointment to cancel tho appointment of the present Commissioners. That tho Finance Committee be directed to provide, when preparing the Estimates, for sinking funds on the loans that at present are unprovided for in this respect. That tho Council’s delegates to the Municipal Conference bring under tho Holies of tho conference the necessity for an amendment of the Municipal Corporations Act iit order that the accounts of corporations, if kept on modern double account commercial lines, shall not be rejected by tho Government auditor. FOB THE MOTIONS. The mover said although ho was a member of the Finance Committee, he did not think the committee the best persons to invest sinking fund funds. They were dependent on the popular

vote for re-olection, and in such circumstances should not be called oa to invest such funds. The act empowered tho investment of local bodies' sinking funds by tho Public Trustee or by independent commissioners. The present Commissioners were not really independent commissioners; they were only custodians. Supposing the Commissioners did hold that they had power of veto over investments, that would mean their clashing with the Town Clerk, who should not bo placed in such a position. The Public Trustee now acted for thir-ty-ono local bodies, and had invested in this respect <£638,277 total funds, about half of which was on mortgage, netting 5 per cent., and the balance was at 4 per cent, to 4% per cent., according to amount. So the proposed appointment of the Public Trustee was no innovation. Tho Trustee gave 4 per cent, for funds from the moment he received them, whereas the Council often had funds lying for a time idle. He was not wedded to the Trustee, and was prepared to substitute for the Trustee a board of independent commissioners, who should be men perfectly independent and qualified by their training to select good investments. As to investing on mortgage, the Council was dependent on the work of tho city solicitor and the city valuer. Mr. Ames had high standing as a city valuer, but the city valuer might not always be such, and therefore the city valuers valuations in such cases should not be taken absolutely. As the Council was going to the public for <£584,000 between now and 1808, the Council should show the public that it was determined to put the sinking funds on a proper basis, especially in view of the large : amount of loan money maturing jp 1929. Councillor Biss asked that the motions bo put separately, and that the re- , scission of the April sth resolution be put first. Councillors might support some, but not all, the motions. The Mayor held that tbe motion must be put as one. Notice was given of it as one motion.

Continuing, Councillor Biss argued that the sinking fund of one loan should j not be applied to redemption of the do- I benturos of another. By this means, they might go to the public for less money for a particular new loan, but it would be bad finance, as they would lose i per cent, on the transaction, and would get in bad odour with banking institutions. If it only applied to Inlying up the debentures of a loan out of the sinking funds of that same loan he would not object. They had an increase in rental of .£ISOO per year from the reclaimed land leases, and also a decrease of =£ ! 1000 in annual interest charges. Out of this saving they' could provide a 1 per cent, sinking fund • for the waterworks loan of =£130,000 (now ’ without sinking fund), which fund at ox- 1 piry of the currency of the loan would yield =£50,000 sinking fund. That would cost =61300,, a year. Other loans should also have sinking funds provided in the same way—the =£51,000 urgent works loan, the =OSOOO fire brigade station loan, and the =£30,000 tramways loan. The provision of a sinking fund in connection with the Melrose borough loan was stipulated in the amalgamation agreement. Councillor Biss also spoke in support of his concluding motion to remove possibility of Government audit objection to up-to-date accounts. THE MAYOR IN REPLY. The Mayor called for a seconder, without result. The Mayor said he wanted a seconder ‘ in order to reply, and he seconded the motion pro forma. He expressed extreme astonishment at the action of any councillor who attended the meeting of the Finance Committee, heard the discussion, and without first intimating his intention to his brother members of the committee, sent to the newspapers (before sending to the Town Clerk) the presentmotions. Members who met together for the purpose of considering public mat- j ters were entitled to have the views of ; each other given without reserve, so 1 that metubore should know, each other’s views; and without honesty of expression as between the committee and himself no member could expect to have the cooperation and support he was otherwise entitled to have from his fellow councillors. At a meeting of the Finance Committee, he (t)ie Mayor) had suggested that a certain matter might take place —that he could not then discuss it, but that it would be brought up again, and would go before the committee and the Council. After lie had hoard that discussion in the Finance Committee, and had not said a single word against that proposal, which aimed at removing a large burden from the citizens, Councillor Biss had forced this discussion, which might exert a prejudicial effect upon that proposal. Such conduct was not conducive to the proper discussion of public affairs. They had been told by the newspapers, in tones the same as those used by Councillor B As, that the representatives of the people were not fit to be personally entrusted wjth the management of a few thousand pounds. Was \that the sort of suggestion to make in these days? What a reflection on the persons who represented the city of Wellington 1 A suggestion of that sort ought net to bo made iu the Council, and if Councillor Biss was so Tory and ancient in his ideas as to entertain that suggestion he would have done better to keep it to himeclf. Councillor Biss had said ’ that the whole history of sinking funds 1 agreed with him. He (the Mnvor) isaicl the whole hislory of sinking funds disagreed with Councillor Hiss. That whole history was to the effect that the freer . th« management of sinking funds by those who had their management, the better tho results; and that when the funds were tied up the reverse was the case. That was also the history of all representative institutions. If they began to act on the principle that as eoon as certain people left their positions the Finance Committee would not be fit to manage its business,' the whole position

would become impossible. What had happened that they should pass a vote of no-confidence in themselves? Councillor Biss had not shown that anything wrong had been done. Even if the Public Trustee was appointed to manage the funds, he would be only in the same position as any other commissioner, except that his commission would have to be paid. But he would not—and did not —earn the same rate of interest as others did. He earned from 1 to H per cent. interest than other people earnedWhy had not Councillor Biss given them a calculation as to the difference between 4 per cent, as against 5$ per cent, at the end of, say, five years. At 1 per cent, difference, that would mean a loss in twenty-five years of one-sixth of what was invested. Councillor Biss had himself testified that so far the investments had been most carefully made; and ho (the Mayor) believed that future councillors would be just a-s careful. If Councillor Biss was not wedded to tho appointment of the Public Trustee, why did ho not follow up his (the Mayor's) suggestion regarding certain persons who should be commissioners, and regarding making the filling-of vacancies m such /cmmis&ioncrships automatic. When he (tho Mayor) mentioned this to other members of the committee, lie said he would bring it up again later on, but did not like to do so during the absence of Mr Aitkcn, one of the present commissioners% Such an automatic arrangement ought To be made, and an officer of tho Council should be specially charged to look j alter the loans and sinking funds; which would make the committee just as efficient a loan body as any other. As to

buying tho Council's debentures, amero provisional authority was taken, because it had been necessary in one case, and might be necessary again. The operation was neither unlawful nor unusual. There were other cases of a public body investing its sinking funds in its own debentures, and it did not always happen that tho tundra and the debentures were attached to the same loan. Ho maintained that the operation could bo used to strengthen the financial position, though it should not be used to issue new loans. As to Councillor Biss’s last suggestion, ho did not understand that the Government auditor would reject accounts prepared as described; ho had been told that the auditor had never done so, and he did not think any Government auditor would do so. Some authorities condemned sinking funds altogether as failing in their purpose; but; having adopted sinking funds, they might as well go on, on such altered lines as lie had suggested. Tho commissioners were trustees, with, all the obligations of tho Trusts Act. OTHER SPEAKERS.

Councillor Morrah said that he, as a member of the Finance Committee, felt that he was quite competent to deal with investment of sinking funds. Still, ho thought the power as to dealing with mortgages should be taken away from the Council. Mortgagee gave better interest, but more risk. lie thought two outside commissioners should be appointed to act with the Town Clerk, He did not think that a man whose business was to obtain loans for clients should .make application and be a member of the committee that decided the application. The Harbour Board was investing in its own debentures, and he saw nothing wrong with the Council buying its own debentures, so long as the management of the funds was in hands outside the Council.

Councillor Winder regretted that Councillor Biss had brought this motion, after having made no objection on the Finance Committee. Councillor Winder also referred to tho reliability of Mr Ames' valuations, and thought it was a very poor state of affaire if they could not trust themselves. After paying a tribute to the Mayor's ability as a financier, Councillor Winder moved as an amendment: That tho Mayor bo requested to make inquiries in financial circles as to the best method of investing public sinking funds, and report t 6 the Finance Committee. Councillor Hindmarsh seconded the amendment, and termed Councillor Biss’s arguments undemocratic. How much of this money could bo let out to interest voters ? It could only reach a very few people. If large lending institutions could lend out their funds without loss, why not this Council ? He thought there should also be an automatic board, such as two ox-Mayors, and the City Solicitor, or tho City Engineer. Ho favoured elasticity as to power to purchase their ; own debentures out of sinking funds. Councillor Biss had not supplied a single argument why they should hand over these funds to the Public Trustee, and why they should not purchase their own debentures.

In the course of the following discussion, Councillor Biss and the Mayor gave, in detail, different versions of what took place in the committee, the princiBal difference being that Councillor iss said he told the Mayor he would oppose the Mayor's proposal when it came up officially, while the Mayor’s version was that all the members acquiesced in hia proposal, and Councillor Biss did not object. Councillor Biss argued that the history of sinking funds showed that their failure generally arose out of putting them to illegitimate uses. In the course of a further reply on points raised. Councillor Biss said the Harbour Board used special sinking funds for investing in debentures of single loans. Councillor Smith believed that the commissioners had done their best, and he did not think Councillor Biss really meant that councillors would not do likewise. Ho had been loaning money for societies for nearly fifty years, and he did not think one of these societies had lost one penny.

Councillor Izard would not support the appointment of the Public Trustee, but he would support the Mayor and an outsider or two outsiders, being commissioners. He did not know what happened before the Finance Committee-. The Mayor: There is nothing there that is not as open as the day. Councillor G-odber said there were already two outside commissioners in Mr J. G. W. Aitken and Mr T. F. Martin. Ho regretted the motion, and supported the amendment. Councillor McLaren maintained it was not a question of the intergrity or ability of commissioners or of councillors. He supported two outside oommissionere, acting with an officer of the Council. Councillor Winder's amendment was cairied.on the voices.

The Mayor said that by an oversight, commissioner© were not appointed for two loans—the «£r5,000 and the .&5000. On his motion, the Mayor and the Town Clerk were appointed conimifisiouers for these loans.