The Southland Times. PUBLISHED EVERY MORNING. "Luceo Non Uro. THURSDAY, AUGUST 31, 1933. THE CITY’S DEBT

Southland Times, Issue 22108, 31 August 1933, Page 6

The Southland Times. PUBLISHED EVERY MORNING. "Luceo Non Uro. THURSDAY, AUGUST 31, 1933. THE CITY’S DEBT

When money is paid into a sinking fund for the liquidation of debts, its accumulation for the accomplishment of its task is dependant on the amount of the annual contributions and the rate of interest the fund is earning during the period in which it is being built up. If the rate of interest paid on the money in the sinking fund is lower than the rate of interest paid on the loans to be extinguished, it follows that any scheme permitting the borrower to apply the annual contributions to the retirement of debentures must effect a saving. This is the basis of the proposal brought forward by the Town Clerk and adopted by the Invercargill City Council; but it is not the whole scheme. The City Council’s plan involves the extinguishment of the whole of the city’s present debt in 23 years with a considerable saving to the city, and no depreciation of the debenture-holders’ asset. The fact that the scheme has been approved by the Treasury, and by the Loans Board, and that the Public Trustee agrees to facilitate its progress, is enough to confirm the impression that the proposal is sound. A conversion loan is

involved in order to open the way for the quicker retirement of debentures, but even here, the arrangement is such that the holders of the bonds are not prejudiced because the retirements will be brought as close as possible to the maturity dates of the present bonds. From the viewpoint of the bondholder the scheme has distinct advantages, especially as the opportunity to free the capital invested in the loans will be welcome to investors in a period in which the general investment field will probably be more attractive than it will be during the next year or so. At the same time it is well to remember that the extension of this treatment to the whole of the debt, where it shortens the period of some loans, will tend to put a 'heavier burden on the present ratepayers than would be the case if the scheme were adapted to a portion of the debt. Assurance has been given that the scheme will not increase the rates, but as a correspondent points out this morning, the application of the plan to the whole of the debt is a matter for careful consideration, because the present ratepayers should obtain as much relief as possible. Criticism of this aspect of the plan.does not affect the bondholder, whose interests are not involved and who, it seems to us, will find the conversion loan attractive; but the position to the ratepayer must be carefully considered and, notwithstanding the substantial saving to be effected over the period, there should be a careful examination of the position with regard to future loans. Councillor Hewat’s criticism was deserving of more attention than it seemed to receive. The principle of the plan is excellent, and if, as the Town Clerk says, it will not involve any increase in the rates, which, we assume, means no increase in the annual expenditure, compared with the present system, it is highly desirable; but some more information concerning its influence on future borrowing would be welcome.