LOCAL BODIES’ LOANS.

Otago Witness, Issue 3808, 8 March 1927, Page 59

LOCAL BODIES’ LOANS.

SAFEGUARDING BORROWING. From the first of April next new provision' will require to be made before loans can be raised by local authorities. The Local Bodies Loans Board Act, passed last session, brings into existence a board consisting of seven members, two of whom are named in the Act as the secretary to the Treasury and the Engineer-in-Chief of the Public Works Department. The five other members of the board arc to be appointed by the Governor-General. The functions of the board are to consider and deal with all applications for loans by local bodies throughout tho Dominion. The board may sanction the application wholly or in part and uih' conditionally, or subject to such terms and conditions as the board shall think' fit; or it may require the applicant local authority to divide the loan into constituent items so that the ratepayers may vote separately on each item; or it may refer the application back to the local authority for modification or amendment; or it may decline to sanction the proposed loan. It will not be competent, therefore, for a local authority to take a vote of ratepayers on any proposed loan after April 1 without the matter having first been dealt with by the be rd. One of the most important features of the Act is that the board must insist upon a sufficient sinking fund for all loans raised. The sinking fund is to be based upon the estimated life of the asset which is to be created by the proposed loan. It is evidently considered that the effect of that will be to put some check on local government borrowing, at least to the extent of insisting upon adequate provision for the repayment of the loan within a reasonable time. The present law leaves it optional for a local body to provide a sinking fund at all; and in practice far too many of them, it is believed, simply create a loan and pay it off at the maturity of the debentures, by raising a similar loan for a like amount. A few striking figures indicate the enormous progress that local body borrowing has made during recent years. In the 20 years from 1905 to 1925 the total gross indebtedness of local authorities increased from £12,05G,73G to £54,023,357. The net indebtedness—that is, after deducting accumulated sinking funds—during tho same period advanced from to £47,259,153. The annual charges by way of interest and sinking fund on this gross debt of £54,000,000 amounted to £3,331,163. In 1905 the annual charges per head of population for interest an<l sinking fund on such indebtedness were 13s 7d. Tn 1925- the charges ?ad increased from 13s 7d to £2 8s 3d per head of population. If the Local Bodies’ Loans Board can place some check on this ib will not have added another to the list c>f official organisations we could do without, but will, on the contrary, have genixincly earned the ratepayers’ gratitude.