LOCAL BODY FUNDS

Otago Daily Times, Issue 21774, 13 October 1932, Page 9

LOCAL BODY FUNDS

INVESTMENT WITH PUBLIC TRUSTEE A SAFEGUARDING PROVISION. (From Our Parliamentary Reporter.) WELLINGTON, October 12. To safeguard the Public Trustee against the heavy withdrawal of moneys -held by him in the common fund, the Local Authorities Sinking Funds Bill was introduced into the House of Representatives this evening and read a first time. According to the official explanation of the Bill, the Public Trustee, as sinking fund commissioner for a large number of local body loans, has been giving the local bodies the benefit of the common fund rate of interest, which up to recently was 5J per cent. When this rate was reduced to 4 per cent, some local bodies were anxious to withdraw their funds from the Public Trustee. As he receives instalments of sinking funds, the Public Trustee has been accustomed to allow interest from the time sums are paid to him. Thus they begin to earn interest immediately, whereas if the sinking fund commissioners invested the sums themselves they might have to wait for a. suitable investment; especially if the sinking fund were a small one. i The placing of the sinking funds in a common fund, it is stated, has given the local bodies the benefit of a regular rate of interest irrespective of the securities in which common fund 'moneys are invested. At the present time the losses on mortgage investments are'met out of the common fund, but the local bodies do not lose the principal. They have suffered only a reduction in the rate of interest, whereas it is claimed that if their own sinking fund commissioners had invested in mortgages their losses might have been heavier. According to the usual procedure, the Public Trustee arranges for sinking funds to be released at the date of maturity of the loans. The action of the local bodies in asking for the release of the. sinking funds at the present time means, therefore, that the Public Trustee has to realise on his investments in order to, meet their demands. At the present time, however, on account of the legislation of. the Mortgagors Relief and National Expenditure Adjustment Acts he is unable to realise on these investments. The Bill has accordingly been designed to enable him to refuse to pay out sinking funds until the expiry of this relief legislation on April 1, 1935. ' Two principal questions are dealt with in the Bill. Clause 3 imposes a temporary restriction on the rights of local bodies to withdraw sinking funds from the 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 the appointment has been expressed by deed or resolution to be irrevocable or to be revocable only on certain specified conditions, the appointment shall be irrevocable, except in accordance with any specific conditions provided for. Clause 5 relates to the 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 be granted at any time before April 1, 1935.