MUNICIPAL FINANCE

New Zealand Times, Volume XLVII, Issue 10848, 14 March 1921, Page 3

MUNICIPAL FINANCE

PALMERSTON N. BOROUCH

THE MAYOR, THE COUNCIL, AND THE OVERDRAFT. IS IT SOUND ACCOUNTANCY? Unfavourable markets for the raising of loans have been experienced during the last twelve months by practically | every local body iu New Zealand (writes the "Timer,” Palmerston [ North correspondent;, necessitating ! a constant reference to the bank I overdrafts for temporary financial [assistance. In the overdraft finance [committees have since discovered an easy ! solution to many- a difficult position- It lis contended that it was far better to work on overdrafts which could be repaid when money became cheaper than raise money at a high rate of interest which would be a burden for something like a period of 25 years. It was better to pay 7 per cent, on a temporary overdraft than raise money covering a terra of years at 54 per cent., plus brokerage. Take the position of the Palmerston North Borough Council. The Mayor, Mr J. A. Nash, M.P.. recently informed the councillors that the borough will have a.\ overdraft of something like -£3o,f>oo on March 31st, 1921. The amount consist. of items of capital expenditure laid oit in footways, Esplanade road, watertables, land, and gasworks, for 'whip' l moneys have not yet beeu_ rat red. The question has been asked, is this sound accountancy ? That so many b‘-g items of capital expenditure should enter into an 1 form part of the overdraft does not, it is contended, appear to be sound, for the reason that it is not always convenient to make refunds when the money is required. Of course, the banks are only too willing to lend anything in reason at 7 p-w cent- upon so excellent a security, but. from the ratepayers’ and investors’ point of view it should, according to their contention, not be overlooked that sinking fund instalments are not being charged iu the accounts against overdrafts. It is therefore concluded that the fundamental principle Upon which local authorities are allowed to borrow — that there should be no permanent debt—is being violated. The argument is that it was never contemplated that the borough’s overdraft should be made a ready source of supply to meet advances for works of which money, though authorised by loans, is difficult to raise, owing to toe unfavourable conditions of the market. The overdraft (it is further pointed out) is there to prevent the obvious inconvenience that must arise to all local bodies at certain periods of the year when expenses in the nature of daily necessities have to be incurred before” a sufficient collection of rates can be made to meet them.