LOCAL LOANS

Southland Times, Issue 22351, 16 June 1934, Page 5

LOCAL LOANS

BOARD’S OPERATIONS REVIEW BY MINISTER A SUCCESSFUL YEAR (Per United Press Association.) Wellington, June 15. A review of the operations of the Local Government Loans Board was made by the Minister of Finance, the Rt. Hon. J. G. Coates, to-day. Mr Coates indicated that the total applications received by the board during the year ended March 31 amounted to £3,884,132 which, together with applications totalling £929,775 received during the previous year but not finally disposed of, made the total £4,813,907 considered by the board during the past year. This amount was dealt with as follows: £ New loans authorized for waterworks 223,150 Electric power works 187,250 Streets, etc. 196,000 Drainage and sewerage 110,250 Harbour works 76,600 Bridges 20,100 Fire boards’ equipment and buildings 28,450 Miscellaneous works 75,760 Total of new loans £917,560 Redemption loans authorized 2,744,245 Total sanctioned £3,661,805 Referred back 956,085 Declined 196,017 Total £4,813,907 The diversion of unexpended loan moneys amounting to £156,573 to enable other works of a similar nature to be undertaken was also authorized by the board during the year under the statutory powers vested in it. Mr Coates drew attention to the fact that although £3,661,805 had been authorized during the year, only one quarter of that sum represented additional borrowing, the other three-quar-ters being merely re-borrowing to meet the balance of maturing loans not covered by the sinking funds. Mr Coates supplied the following table which summarizes the board’s activities during the seven years since it commenced to function on April 1, 1927 (the last two columns are sums sanctioned):

Totals 28,951,021 14,514,110 11,241,079

“It is significant to note,” said Mr Coates, “that the total applications received by the board, even in the years before the effect of the present depression was being felt, showed a material decrease after the. first, two years of the board’s operations, indicating that the very existence of the board had a steadying influence. One of the most pleasing features of local body finance is that for the financial year ended March 31, 1932, there was a decrease in the gross amount of local body debt then outstanding, this being the first occasion on which a reduction in debt had been revealed from 1921 when the gross debt was approximately £32,000,000. There was a steady increase till 1927 of over £5,000,000 a year, so that the debt actually doubled during that period. From then onwards there was a gradual tapering off in the amount of borrowing (due undoubtedly to the effect of the Loans. Boards operations), the increase during the period from 1927 to 1931 averaging slightly over £200,000 a year. However for the year ended March 31, 1932, there was an actual reduction in the gross debt.” A Notable Year. The Minister mentioned that 1933-34 was a notable year in the history, of the Loans Board owing to the passing of the Local Authorities Interest Reduction and Loans Conversion Act, 1932-33, which took effect as from April 1, 1933, and under which the board was charged with the duty ,of considering applications for authority to convert existing loans. The conversion of the public debt of local bodies thereby authorized added considerably to the responsibilities of the board. It was agreeable to find, said Mr Coates, that the local authorities are taking advantage of the legislation referred to, as is illustrated by the tact that to date existing securities totalling £28,303,304 had been dealt with by. the board and the issue of new securities for £28,003,562 authorized in respect thereof. Although, in many cases premiums on conversion are met by the issue of new securities, there is still a reduction in the amount of debt in the process of conversion. Ihis .is brought about by the utilizing of existing sinking funds for the purpose of debt reduction as the date of conversion, this being possible of course only in cases where the sinking fund commissioner and the lender are of the same person or where the lender agrees to accept immediate repayment. The gross debt owing by local bodies as at March 31, 1933, was £72,476,056 which, together with the loan debt. of hospital boards £1,436,066 (which figures are not included in the ordinary statistical returns), makes the total debt £73,912,122. Of this, however, only £51,179,123 is domiciled in New Zealand, and of the latter figure, a further £4,592,319 is not subject to conversion, due chiefly to the low rate of interest. The net debt as at April 1, 1933, that is the date from which the conversion Act applies, was £46,586,804. As £28,303,304 has already been dealt with by the Loans Board in conversion operations already handled, the balance remaining is £18,283,500. Approximately £2,000,000 of this figure, however, has been dealt with since April 1, 1933, either by complete redemption from the respective sinking funds, or by way of renewal loans, so that the figure still to be dealt with by the board, either by way of conversion or by way of renewal loans, is now reduced to manageable proportions although there is a vast amount of work still to be done. Mi Coates also stressed the point that one of the most desirable features of the conversion operations was an alteration in the system of repayment of loans from the sinking fund basis, whereby moneys were allowed to accumulate in the sinking fund until the final maturity date to the more modern method of redeeming debentures, each year from the sinking fund, of an amount at least equivalent to the annual payments into the sinking fund. The present accumulated sinking funds under this system are also gradually liquidated for the purpose of redeeming further debentures, so that no question arises as l°ss of future sinking fund investments and there is uncertainty as to the earning power of investments. The new system also ensures a more even flow of money into the hands of investors for reinvestment in other channels or local body securities. “I think we are justly entitled to claim,” concluded Mr Coates, “that the whole system of local body finance is being quietly revolutionized and I feel confident that the results which will follow from the movement initiated by the passing of legislation authorizing the conversion to be undertaken will

be beneficial and far-reaching. I freely acknowledge the important part the Loans Board has played and the very satisfactory manner in which the conversion schemes are being undertaken is in no small measure due to the efforts of the board,”

Total New Redemption Year. Applications. Works. Loans. £ £ £ 1927-28 4,036,649 3,212,185 1,048,796 1928-29 6,107,045 3,866,551 809,221 1929-30 4,218,730 3,563,842 967,875 1930-31 3,840,505 1,766,356 838,901 1931-32 3,412,365 781,195 2,483,810 ■1932-33 2,951,645 406,521 2,348,231 1933-34 3,884,132 917,560 2,744,245