ADJUSTING FINANCES

Taranaki Daily News, 16 April 1935, Page 7

ADJUSTING FINANCES

NEW PLYMOUTH LOANS

DELICACY OF NEGOTIATIONS.

REVIEW GIVEN BY THE MAYOR.

At the final meeting of the present New Plymouth Borough Council’s term last night the Mayor, Mr. E. R. C. Gilmour, submitted a comprehensive report of activities undertaken during the three years in which it has had control of affairs. Included in the review was a summary of the major financial transactions undertaken during that period—a period in which practically every local body in the Dominion experienced grave difficulties of adjustment.

During the past two years, stated the report, the council had had to solve many difficult problems. Councillors, however, gave of their best, and spared neither time nor trouble in overcoming them. It was pleasant to record' that, on every occasion, they evinced the utmost courtesy and cheerfulness in carrying out their duties. The most worrying transaction the council had to deal with was the raising of a loan to provide the money for the repayment of a large number of borough loans totalling £644,600, which matured on April 1, 1933. The negotiations had been proceeding for some time during the term of the preceding council. When the prfesent council took over, the position was that the previous council had raised a loan of £153,500 at London, to pay off the portion of the loan domiciled' there.' It had also utilised - the available sinking funds to pay off portions of the loans domiciled in New Zealand. In the meantime, it had arranged an overdraft with the Bank of New Zealand with a limit of £360,000, by means of which it paid, at due date, the balance of all debentures then outstanding. The council was not compelled to avail itself of the whole of this accommodation, but had to use the larger proportion of it. The previous council had also f .entered into negotiations with various "lending institutions for the raising of sufficient loan monies in New Zealland to pay off the bank overdraft. The .present council continued these negotiations, but, as they were carried, out in the midst of the great economic crisis, and during the period the Government was endeavouring to force down the rate of interest in New Zealand, the negotiations proved difficult, and became protracted. It was, therefore, several months later that the matter was finalised, the position being as follows: — A total of £153,500 was raised at London at £96 at 4t2 per cent, for 20 years, with a sinking fund of 2 per cent. The rate of interest, after allowing for expenses and discount on the debentures sold, worked' out at approximately 5% per cent, per annum for the ln view of the financial situation on the London market at ..the time, the terms were as reasonable as could be expected. The city of Dunedin, which raised a very large sum at London at the same time, had to accept almost similar terms, except that the debentures were sold at £9B instead of £96—very little difference indeed, when the financial standing of the two towns was compared. In New Zealand, £361,700 was raised by the present council on the amortisation or table mortgage plan at 4% per cent, per annum, half-yearly instalments of principal and interest extinguishing the loan during a period of 26 years. From a comparative financial statement it would be seen that the sinking fund exceeded expectations by £24,676 14s 7d, and the expenses were £13,801 6s 9d less than the estimate. Fortunately, these possibilities were closely watched, and it was eventually decided to float only £515,200 in place of the £553,000 authorised. In connection with the negotiations with the A.M.P. Society for the portion of the loan taken up by it, opportunity was taken to rearrange the amount to be raised from the society for the £172,000 drainage loan. It was decided not to raise the balance of the drainage loan, amounting to £lO,OOO, and to reduce by £25,000 the amount agreed' to be taken from the society. Later on it was arranged to reduce the amount to be taken from the society by a further £7OOO. COMBINED LOANS POSITION. The position of the combined loans when finalised showed that the council actually raised £79,800 less than. the estimated requirements authorised. With the exception of the £76,500 loan raised at Melbourne, and the £153,500 loan raised at London, all the loans of the borough were now on the amortisation plan. Of the £76,500 loan, £25,000 has since been domiciled in New Zealand, and' would shortly be ebnverted and placed on the amortisation plan also. This was a matter of the utmost importance, for it ensured that more than twothirds of the council’s public indebtedness would be definitely extinguished by half-yearly payments of principal and interest during various periods, the longest of which was 26 years. If care was taken to set aside adequate sinking’ funds for the other loans mentioned, and a long rest be taken in regard to raising further loans, New Plymouth had a wonderful opportunity, during the next 20 years, of reducing its public debt to an almost negligible amount. In 1934 the council was authorised to convert the drainage, Egmont National Park and Pioneer Road loans totalling £134,700, the loan to be finally extinguished in 1962. Other adjustments of smaller amounts were also made in a further order.

By the refinancing entailed by the raising of the new loan in 1933, and by the recent conversions, the loan indebtedness of the botrough had been reduced by over £128,000, notwithstanding that further instalments of the drainage loan, amounting to £25,000, were raised' in the meantime. On March 31, 1933, the loan indebtedness was £864,967. It was now £736,921. . '

Interest had shown a net saving of £9l46—a reduction substantially added to by reduction in the electric light estimated interest bill of £8175. The high peak of rating had been reached in the year ending March 31, 1933. Since then, owing to the reduction of interest charges on the public debt of the borough, and by using up certain reserves and reducing expenditure, .it had been possible to make a reduction in rates .each year. The rates for the ensuing year had been fixed, the reductions previously given being continued. For the three years period ending March 31, 1936, very substantial relief to ratepayers would have been given, and this during a time of great financial stringency. when relief was most desirable. For that period the total reduction was £34,200. The planned revaluation of the borough would not affect the. total amount to be collected in borough and harbour rates, but it would 1 mean a more equitable distribution of the incidence of the rating on individual ratepayers.

The loan authorised for the comprehensive drainage scheme was £172,000, but this included £9200 for advances to owners for drainage work on private property, and also the cost of raising the loan. The actual constructional cost was estimated at £158,484. With the exception of certain lines of sewers, not immediately necessary, to cost £2419, the construction of which had been deferred, the whole of the works comprised in the comprehensive scheme had been completed at a cost of £124,853 —-a saving on the estimated cost of £33,631.

ANSWERS TO CORRESPONDENTS.

Hotel Employees’ Award: The answer given in the correspondence columns of the Daily News yesterday to an inquirer regarding the award for hotel employees was, as requested by the correspondent, the wages paid before the current award —one enforcing an all round 74 per cenr. increase—came into, existence. The wages 'quoted, therefore, are not the current rates, but based upon the 1932 award.