THE PUBLIC TRUST

Poverty Bay Herald, Volume LIX, Issue 17953, 3 December 1932, Page 4

THE PUBLIC TRUST

(To the Editor of the Herald.) Sir,—Since tho introduction into Parliament of; the Local Authorities’’ Sinking Funds Bill which lias now been passed, statements have been published which are likely, to give rise to misapprehension not only as to the natrte of the measure itself, but. also regarding other matters relating to the Public Trust Office. It is desirable that any misconceptions which may exist should bo removed and I shall be glad, therefore, if you will give publicity to,this letter. The purpose of the measure is to prevent the replacement of the Public Trustee as sinking fund commissioner bv other commissioners for the purpose of relieving local bodies from the .effect of recent, legislation affecting practically all classes, of investment. Numbers' of local bodies whose sinking funds had been invested by tlio Public Trustee to provide for the redemption of loans on maturity were endeavoring to establish that the Public Trustee’s appointment was revocable and .that they might withdraw the funds in cash ,and. entrust them to new commissioners for reinvestment in securities free from the restrictions imposed hy the recent relief legislation (the Mortgagors, and Tenants Relief Acts and the National Expenditure; Adiustment Act) leaving with the Public Trustee investments to a similar amount which would be,subject to the full effect of the reductions of interest and other disabilities recently imposed on the investments. Even ,if such a power were possessed, its exercise would have been in the highest , degree unjust to the Public Trustee who invested the funds in good faith on the understanding that they would not be required until the maturity of the loans and who in common with other mortgagees of land is largely debarred by, the existing, relief legislation from realising his investments. When it is stated that the sinking funds involved amount in all to AM,699.720 the necessity for restritcing the arbitrary withdrawal of'the funds is evident. ... Regarding the basis on which the sinking funds were accepted by the Public*'Trustee for investment it is to be pointed out that if the moneys had been considered to be repayable on demand it would have been possible lor the Public Trustee to allow only call rates; of interest, and he would have been; precluded from crediting the higher rates of interest which were in fact allowed in the past; <■ . It cannot be too strongly emphasised that there is no interference in any way with tho obligation of the Public Trustee to find the moneys for the redemption of the loans on maturity, for which purpose the sinking funds were established. All that is being done is to require the local bodies to bear their share of the geperal sacrifice which has been made in all classes of the community as a result of the passing of the recent relief legislation under which the local bodies themselves, and the ratepayers whom they represent, Tune obtained very substantial benefits. The reduction of the interest allowed by the Public Trustee is only temporary aiul it will probably be found ultimately that investment in the common fund of the Public Trust office is still the best mode of investing sinking funds seeing that the local bodies are thus protected from any loss of capital or accumulated interest and have" obtained other-valu-able advantages which are not available in other forms of investment.

The legislation recognises that some distinction should rightly be drawn between past, instalments which have already been invested by the Public Trustee and future instalments which will become available for investment and provides for the special investment of future instalments in Government seeuri : ties if the local bodies concerned so desire and make application for the requisite Order-in-Gouncil authorising this procedure. Nome criticism has been directed at a clause of the bill which declares to he binding bn local bodies the provision frequently inserted in deeds or resolutions appointing the Public Trustee commissioner to the , effect that, tlie. appointments should lie irrevocable. ..There can, however, be no real objection to this clause which merely gives effect to an arrangement entered into by the local body with the Public Trustee at the time when ho accepted appointment as sinking fund commissioner. Had the provision been unacceptable to the local body it had the remedy in its own hands as* at tho outset it could have appointed private sinking -fund commissioners. >

To this brief explanation of the legislation it may be added tliat there was no'opposition to the measure xlpon the part of the large majority of local bodies affected and that a . number of these bodies voluntarily expressed their con notion that its provisions were fully justified in view of the specie'! conditions following on the earlier legislation. As a .further testimony that its.provisions are of a reasonable and justifiable nature it may he stated that during the course of its passage through Parliament the bill met with practically no opposition. • ■ .. . The • reduction of the rate of interest allowed on monoys invested in the common fund which has been the subject of criticism was rendered necessary by the passing* of the mortgagors relief legislation and the National Expenditure Adjustment Act which resulted in the revenue from the investments of the common fund being considerably reduced making it inevitable that there should be a revision of the rates of interest credited on those moneys. It is, however, of a temporary nature and when the legislotion censes to operate an increase will he made as soon as possible. Had the funds been invested ‘outside the common fund the, interest arising from the investments would still have been subjected to the statutory reductions while they would have been deprived of the guarantee which the common fund affords of the security of the capital sums. As in addition to the security of the capital moneys, beneficiaries have been assured of the regular payment oi interest throughout the period- of depressed conditions, it is unlikely that they would have obtained more favorable results from investment outside the common fund.

With regard to the moneys held -on investment agency the rates which the Public Trustee agreed to pay were based on the rates payable under the contract? in force with borrowers from the Public Trust office prior to tho passing of the National • Expenditure Adjustment Act. The latter rate's were substantially reduced by the operation of that legislation and to have continued the payment of the rates originally agreed upon would have, resulted in the whole, burden of the legislation being cast upon the beneficiaries and other persons interested in the remaining moneys in the conupon fund. -Manifestly, this would have been’ inequitable.

Tho interest- on the investment agencies Wits -induced by tjijo-teuth, the reduction which ithe investors would,have sustained, had their moneys been invested in (Sovorfimeut or local body securities. Under the special'legislation the interest receivable from the investments of the common fund was reduced hv proportions ranging from 10 per. cent, to 20 .per cent., so that the basis of adjustment adopted cannot bo said to be inequitable.

It has been suggested that such large losses have been incurred by the Public Trustee as to imperil tho security of the moneys invested in the common fund, and doubts ft have in addition been raised as to the existence of a State guarantee in respect of those moneys. Actually, the losses written off by the Public Trustee over a long period extending up to , the .present time have been very small in comparison with tbo total sums invested, while large reserves have been accumulated in the past as provision against such losses as might be made. Regarding the State guarantee of moneys in the common fund, section 35 (1) of the Public Trust Office Act, 1908, 're-enacting previous legislation provides as follows:—“If the common fund is Insufficient to meet the lawful claims thereon, the Minister of Finance shall, without further appropriation than this Act, pay such sums out of the consolidated fund as may be necessary to meet the deficiency. ’*

In a case before the Court, of Appeal the effect of this section was expressed by a member of the court in the following woyds“lf the common fund should become insufficient to meet the lawful claims thereon, there is a separate and distinct provision that the deficiency is to be made good out of the consolidated revenue,” Since doubts mav h»' v c been raised by one statement attributed to a local resident and reported in the local papers that he had been trying to withdraw moneys from the common fund, T desire to add that no person with moneys invested in the common fund has been refused repayment at. the appointed timp nor will any application for moneys property payable be refused. It is impossible within reasonable limits to reply to each point which has been raised but the important matters have been dealt- with above and if any beneficiary, client or prospective client of the Public Trust Office desires any further information and will call at the PjnhJic.Tjcnst offico it will be supplied. To obtain a correct perspective as to the criticisms of the Public Trust Office which .hgye appeared, it is necessary to know that a considerable amount of propaganda aimed at shaking the confidence of the„ pijb'lic in tho Public Trust office Ipis recently been conducted.> The origin of this propaganda —not entirely of a djsiptqreUed nature—is known to and appreciated by tho Public Trustee and no doubt ‘by the public also. , T,ho, rapid and uninterrupted expansion of the business of the Public Trust Office, in the Gisborne district and throughout the whole of the Dominion cl9ar.lv testifies to the confidence which is so widely reposed in the office, but in order that unfounded feari may he alhtycd I should he glad if von would give this letter the same publicity that has been given to the criticism to which ; t, applies.—Yours, etc., J. W. MACDONALD. Public Trustee.