CITY LOANS.

Star (Christchurch), Volume LXVI, Issue 20359, 17 July 1934, Page 9

CITY LOANS.

Objection to Report of M.E.D. Manager.

COMMISSIONERS’ SURPRISE. Surprise that certain statements regarding the position of the City Council sinking funds which were contained in the report of the general manager of the Municipal Electricity Department, was expressed by the commissioners in a letter to the meeting of the City Council last evening. The letter, which was written by Mr 11. Cotteriil on behalf of the commissioners, was as follows: “At a meeting of the commissioners held on July 5, the report of the general manager of the Municipal Electricity Department on the year’s working which was published in the newspapers on Tuesday, July 3, was considered, and in particular, various statements appearing in the report under the headings of ‘Sinking Fund Reserves’ and ‘lncome Investments.’ The following are extracts from the department’s report to which your attention is particularly referred: SINKING FUND RESERVE. Sinking- Fund Mortgages Reserve.— The Sinking Fund Commissioners this year, in their report, mn'ke a definite provision of £13,000 for interest on mortgage* which may p-ove difficult to collect. The department’s share of this anticipated loss would considerably exceed this year’s allocation to sinking fund. This is the first acknowledgment from the commissioners that the anticipated revenue from sinking fund investments will not be realised. There is, however, no reference to a more significant and equally vital matter, namely, the probable loss of principal in connection with the sinking fund investments in mortgages. The council as a whole has £253.213 invested by the Sinking Fund Commissioners in various mortgages. Of this amount, approximately £lll,OOO .is on behalf of the electricity undertaking, it is impossible to gauge the extent to which not interest only, but also principal. may be lost in mortgage investments under present conditions. Some adjustment in land values seems to be inevitable. Through its sinking fund investments the department may have to contribute its quota to this national adjustment. INCOME FROM INVESTMENTS. The committee has believed the department was putting aside sinking funds sufficient to meet all its loans at maturity. Actually it is not known what those sinking fund investments are worth to-day. “The commissioners are surprised that these statements should have been made in public without reference to them. “Wrong: Impression.” “Seeing that the accounts of the year ended March 31, 1934, have not yet been presented to the council, they can only conclude that the evidence on which the statements in the report were made, was based on the draft accounts of the year, prepared immediately after March 31, which, in accordance with the practice which has obtained for more than fourteen years past, were submitted in confidence by the commissioner’s accountant to the accountant of the Department, as evidence of the cash accretions to the funds of the commissioners during the financial year. The commissioners consider they are entitled to complain that use has been made of these draft accounts, which in themselves and j without an explanation of the item of arrears, give an entirely wrong impression of the position of the investments and of the income account. Payment of Arrears. “The commissioners now direct us to inform you:—

(1) They have not yet submitted their accounts for the year ended March 31, 1934.

(2) They have not made any report on the accounts of the same year. (3) No loss' of interest was shown in the report for the year ended March 31, 1933, for the simple reason that no claim for remission of interest had then been received by the Commissioners. Any losses of interest occurring during the year ended March 31, 1934, will, of course, appear in the report to be presented next month.

(4) The income receipts of the year will show a substantial improvement on the previous year. Already a large sum has been received on account of the arrears existing on March 31. 1934, and further considerable payments are still coming in. (5) With regard to the capital of the funds invested on mortgage, the Commissioners desire to repeat, with even greater confidence, the statement in the previous year’s report, viz. : “We think, with confidence, that the investments of the Commissioners are sound, and that the recovery of the value of our primary products should in no long time enable us tc show a satisfactory return from the investments.” Margin of Security. “There is a statement in the department’s report that some adjustment in land values seems to be inevitable. That is undoubtedly the case. As against this, it may be .said that threefifth of the amount of the mortgage securities now owing is invested on mortgages showing a margin of over 50 per cent of the estimated values at the time when the investments were made. In the case of the remaining twofifths, the margin was well above 40 per cent of the estimated values.” General Manager’s Reply.

The general manager of the M.E.D. (Mr E. Hitchcock), in commenting on the letter of the commissioners, wrote that strong exception must be taken to the suggestion that the M.E.D. officers were responsible for information given in confidence being published. Over a long period of years, the official information relative to the department’s sinking funds had come to the department in no other wav, and part of it had always been published about June in the department’s annual report. This vear. as a matter of assistance to the commissioners’ staff, the department typed the statement of council sinking f-mds. No statement was made in any part cf the department’s report which could be interpreted as a reflection upon the commissioners, or in any way commenting upon their judgment.

The letters were received after a discussion. in which it was stated that publication of the report of the M.E.D. was due to a misunderstanding.