LOCAL LOANS BOARD.

Otago Daily Times, Issue 20104, 21 May 1927, Page 17

LOCAL LOANS BOARD.

METHOD OF SANCTION. OUTLINE OT CONDITIONS, (Special io Daily Times.) WELLINGTON, May 20. A circular has been prepared by the Local Government Loans Board, drawing the attention of local bodies to ceratia requirements of the law and the principles adopted by the board relating to the raising- of loans. The board advises that expenditure on works should not be incurred before final sanction obtained as failure to obtain, or delay in obtaining, sanction, would, or might, necessitate the payment of the expenditure from current revenue. Loan moneys cannot in general be applied in the repayment of expenditure already met from current revenut or overdraft.

In considering whether to sanction an application the board will take into account, particularly,' whether the proposed purpose of the loan would be such a benefit to the public as to justify the loan, whether the local authority appears financially justified in incurring the loan obligations, the propriety of the purpose of tho loan and the sufficiency of the provisions for repayment. In general the board will not consider it desirable to sanction a loan for: (1) Works other than permanent works, including any works of which the Board thinks the cost ought to be spread over a term of years. (2) Repairs. (3) The replacement of an asset, or the renewal of obsolete or worn-out material to the extent to which the loan originally raised in respect thereof is not fully paid off (it is considered that in such a case the balance of the cost of replacement, or renewal, or the amount of the outstanding debt should bo met out of revenue, or charged against reserve). (4) Sab'-'■-’s and wages of an administration staff.

(oy ...out of interest on loan money. An exception may be made where the loan is for revenue-producing' assets, such as electrical schemes; where the interest may be permitted to be subject to any tions imposed by statute pending the commencement of the receipt of revenue, but! in no case for more than three years. (6) Amounts small enough* to be provided for out of revenue by the imposition of a small additional rate, and a due charge for services, or other source of current revenue.

Capital expenditure, the board points out, is not necessarily payable out of the loan money, but loan expenditure should be limited to the purposes of capital works —i.e,, permanent works. In a proper case, however, the board is prepared to recognise the propriety of meeting out of loan moneys certain classes of non-recurring expenditure—such as expenses attending the raising of the loan for which do not produce permanent works. Application for sanction to loans, for loan renewals, or for the payment, consolidation, or conversion of _ a loan should be made in time for sanction to be obtained before the old loan falls due, or before the proposed date of consolidation or conversion loans will be required to be made repayable in from five to 50 years, as the board may determine. in proper cases the board proposes to adopt the rule of the Imperial Government by which loans raised by a local authority must bo repaid within the estimated working lifetime of the assets for whose creation they are used. Effective provision ifl required by the board to be made to ensure that loans are repaid, either by equal annual or half-yearly instalments of principal, or principal and interest, by the setting apart annually, or half-yearly, as a sinking fund, of a sum which, invested m authorised securities with accumulations at compound interest, will be sufficient, after payment of all expenses, to repay the loan within the period fixed by the board, or in exceptional cases by unequal annual instalments, by instalments suspended or payable at longer intervals, or in such other way as the board may approve.