HAMILTON BOROUGH.

Waikato Times, Volume 97, Issue 15980, 7 May 1924, Page 2

HAMILTON BOROUGH.

ELECTR3OITY MATTERS, THE REPORT OF THE MAYOR. His Worship the Mayor (Mr J. R. Fow) has compiled the following comreport dealing with electricity matters for the last financial year for submission to the next meeting of the Borough Council:— (in April 1, 1923 the capital account of the P:iectricity Department stood at £68,5.77, £63,151 2s 2d of which represented loans raised on the security of special rates on the rateable value of property in the Borough. Of !iie total loans £20,551 was raised in connection with the installation of what is known as D.G. power and with the advent of hydro-electric power the bulk of the old plant and machinery, etc., used to supply electricity from the Franklon Power House was rendered useless as far as Hamilton was concerned. The Government Auditor required during the prevents year an amount of £1.1,917 16s to be'written off as the then loss on the old plant and during the year 1923-24 a further sum will have to be written off. probably another £2OOO or more, as the assets in that plant were shown in the earlier balance sheet at too high a figure. In the Department's accounts for the year 1923-24, no allowance has as yet been made for ihe further writing down of that plant as the Council's officials have preferred to wait and confer with the Auditor before fixing any definite figure.

£42,600 being loans spent In installing the A.C. power is too high a f/gure to set down as the value of the present plant as it must be remembered that the bulk of the reticulation wag completed at a period of very high prices Poles, wire, insulators, cutouts, meters, transformers and all electrical materials have decreased considerably in cost since the peakprices of 1921-22 when the bulk of our supplies were obtained. The loans raised in connection with the supply of both A.C. and D.C. power were, with the one exception of an amount of £ISOO all long dated ones with a 1 per cent sinking fund, though the life of the units in each system of supply is not anything like as long as the period it takes for a sinking fund of that size to accumulate sufficient to repay the moneys spent in obtaining and erecting them. Present Policy.

Acting in accordance with the decision of a previous council during the year £2500 was paid out of last year's cash balance or revenue account to extinguish a loan raised to instal D.C. power, the money being rc'tik'ncd to the Council for investment in another loan at 5J per cent interest which was ihe rate the Electricity Dopnrlmcnf was paying for ihe accommndaliofT. The transfer benefitted both this department and the waterworks department which obtained concession of 4 ocr cent on (he then ruling rate of interest. The present Council decided to incense the sinking funds on life balance'of (bo D.C. Loans £ 1 5,0~,t fn .'!'> per cent involving an annual apn"lfiliation rif £632 or an increase of P i''2- per annum. Thin will considerably reduce the period required to ruji'.df! Ihe sinking funds lo accumuI'l'r to an amount equal to these loans, bill it is open to question whether an even larger amount should (ret have been set aside for the. purrnac seeing that the loans will during j!,,,;,. currency be a charge on the Dcs "t'tment and that it obtain no further i'onen.U-from them. . .*'

As Ihe £4 2.000 ralsPd to instal the V „.C. system was considerably more [hnn the capital value t of Hie plant !hn previous committee authorised the department to charge to revenue ociTinnt the cost of services connected !o the mains and during 1922-23, i:!r.00 was repaid to the Loan Account vhilo during the past year £2OOI 3s "■d has been spent in this connection out of revenue, the balance of the increase In Ihe capital account, £3007 lis id being provided Tor out of loan moneys.

It is proposed to continue (his policy for two reasons ■ —(I) To build up a. business to the present day value of the. capital cost, represented by loans, thus improving the earning' capacity of the plant and improving the position from the p f| int of view of the ratepayers who are security for payment of all loan charges and repayment of the loans when Ihese fall due, and (2) to obviate Ihe necessity for obtaining further authority to raise new loans for services. The present Council has decided upon the creation of a fund to provide for depreciation and renewals of the reticulation and for this purpose set aside £2130 per annum equal to 5 per cent of the amount, of Ihe A.C. loans. This will ensure the replacement of worn-out plant, etc., during the period of the loans. The increase of the sinking fund from 1 pot cent to 2* per cent, £456 to £10(')"). also decider? imon by the present Council is a provision that. I think might be deleted from the charges on the department's revenue, provided the payments for depreciation and renewals are kept up so that adequate reserves are maintained for this purpose during the period of the loans, approximately 30 years, the sinking fund of 1 per cent per annum on these loans will prove all the atlitional charge that it is necessary to make as this sum will ensure the repayment of those loans when they fall due. Creation of Reserves. With the exception of this increased sinking fund for the A.C. Loans, however, in view of the amount written off by the Government Auditor in 1922-23 as the then loss on the capital used to install the D.C. plant at Frankton. the further loss we will bo compelled to write off this year, the large amount of preliminary expenses shown nominally as an asset in our balance sheet, the depreciation and renewals which it may reasonably be expected will have to he provided before the loans are. repaid and the over-capitalisation due to the purchase of materials during the period of peak prices, I am strongly of opinion that the increased payments on account of D.C. Sinking Fund, the payment of service connections out of revenue and the provision for depreciation and renewals should all stand "until reserves of an amount in proportion to the loan capital of the Department have b.een created and the loss on the D.C. plant, has been paid off. The trading departments of the Council should be looked at from the financial aspect just as we would look at (he position of a private undertaking and every effort should be made to place these departments on a thoroughly sound commercial nasis. It has been the policy of past Councils to consider all questions of the price of electricity in relation to the effect that alterations would have on the consumers of gas and the financial position of the Gas Department. Various suggestions for a change from this policy have recently been made the chief of which are:—(l) Whether it would be advisable to amalgamate the profir.s or losses on both Departments and treat them as one lighting and cheating -department and (2) whether it might not be advisable to scrap the gasworks. The second suggestion is one that no Council for some years to come is likely to adopt. Improvements are Constantly being made in gas appli*

ances and for certain purposes gas is to-day a much more •"suitable form of heating than electricity. Moreover there are many consumers of gas in the Borough who do not wish and cannot afford to scrap their gas appliances and replace them with electric ones. Lastly we cannot afford to 'over-look that we have a total of £77,5'48 (less the unraised portion of ' the £BOOO loan) of loan money invested in the works which costs us in interest alone the sum of approximately £3650 per annum and on accumulated sinking funds in respect to these loans total approximately only £B4OO. Until these loans are repaid we must continue to pay the interest charges on them and also pay a reasonable sinking fund and until the Department shows a loss equal to those two payments combined we must continue to supply. To close down the works would, mean the collection of a special rate from the ratepayers to pay these charges. Grouping of Departments. The former suggestian that the two departments should be treated as one concern and the loss on the one set against the profit on the other is in effect being carried out to-day. All payment to and payments by the departments, with the exception of loan payments,' are made by the, District Fund Account. The departments have the one office manager and staff, but it is not practicable to have one engineer controlling both and m the balance sheet it will always be advisable from an accountant's point of view to show each as a separate entity. The proper person to pay for any deficit on either department is the ratepayer who specially pledges his property as security for the loans raised to provide the capital necessary to. inaugurate the works. Hp has a direct say in whether they shall be provided and when he transfers his property the incoming taxpayer takes over his liability in this connection. He is exactly in the position of a shareholder in a company and like many another shareholder he pledges an asset, his land, to provide capital to enable a certain business to be transacted expecting in return to enable him to sell the land he pledges at a greater profit that would otherwise be the case. Whatever his object, however, he undertakes the responsibility for payments of interest on the amount he agrees to borrow and for repayment of the principal when this falls due.

During recent years a good deal of adverse criticism has been directed to local authorities and the State by persons who have studied the incidence of taxation in New Zealand chiefly owing to the fact that both the consolidated revenue and the local bodies, general fupds have been called upon to pay losses incurred by trading departments. It is contended by many that these departments should in their prosperous years provide adequate reserves against possible losses and should also pay to the revenues a proportion of (ho charges, rates, taxes, etc., that they would be called upon to pay were they in the hands of' private owners.

In ihe case of our gas and electricity departments the raicpayers are responsible for loans totalling-£138,-.191 arid the interest oh these,' and I am of opinion that in. return for that responsibility the consumers of gas and electricity should pay (this is possible in the case Qf. the electrical consumers without undue hardship) a percentage of profit on their loan capital to the general fund. i, therefore, propose- that the gas, water, and electricity committee go -into the .matter of what'moneys should be found by each for .this purpose, fixing the percentage,- after provision for which further profits' should be returned to the consumer by way of reduction in the price. The" electricity department this year has added £9Ol 4s 3d to it's credit in district fund account. If the Council is prepared to wipe out the increased payments on the A.C. or hydro loans sinking fund, £609, will be available next year for this purpose together with any cash balance on the year's 'working. As the payments for service connections should gradually decrease, an increasing sum each year will probably be available. Direct or indirect Charges,

We have reached the stage in Hamilton's development when rating on unimproved value imposes a heavy charge on the owners of property in the business portion of the town. The Hamilton area pays no than 75 oer cent of Ihe rates collected while the private householder, though he makes many demands on our funds escapes fairly lightly. He is certainly called upon to pay a share of the rate due by the business man and paying indirectly he undoubtedly has passed on to him a greater charge than if he were called upon to contribute directly to'the Borough funds. The suggestion that the trading departments be called upon to assist our general revenue will not add one iota to the cost of collection of this revenue, and being a direct charge to each and every consumer will not be passed on with a percentage or increase as would the rise in r*tes necessary to bring a correspondingly increased revenue. Moreover any decrease in the price which might bo .justified to-day means a little to the individual that it is hardly worth while, yet in its total it may mean the difference of an eighth of a penny or more in the rate. It, is certain that the water and electricity departments between them could assist next year to the extent of somewhere near one farthing in th pound in all The question of taxation is a most complex one and it. must be admitted that no system yet devised is perfect, but the ideal methods to adopt arc those which (1) bring in the greatest revenue at the smallest cost of collection; (2) are direct rather than indirect; (3) arc not capable of being passed on; (4) assure that all classes in the community pay in proportion to their means and (5) which arc paid with least inconvenience to the taxpayer. A purely land tax, such as a rate, is not the ideal method to adopt to raise revenue and the single lax scheme has not yet.been adopted by any Government of any importance though s'ome people would impose it upon local bodies. In other lands consideration has been given to all sorts of schemes from the collection of a local income tax to proposals of a similar nature to those now before you, the, general desire being to devise some method of widening the basis of taxation and to overcome the objections to a single tax system. In New Zealand the only .alternative to a single tax is the power to obtain and apply profits from trading undertakings for general revenue purposes. This scheme has proved to be very effective in other parts of the Dominion, especially in Dunedin, which is recognised as one of the soundest manufacturing and trading towns in New Zealand and a model upon which local, authorities might well fashion their financial affairs."

Taxpayers have a rooted objection to find moneys for borough, works by way of rale. The demand for a lump sum. whether it be large 'or small always raises a stir, but this is not the case when the collection is spread over 12 months only a small sum being obtained in each. The prosperity of the town depends in no small degree on the prosperity of the business community and in' deciding 'to" apply some profit from our trading undertakings to relieve our rates we can help the business people and confer a

benefit on every person in the district. Electricity Supply Accounts. Revenue account from Ist April, i 923 to 31st March, 1924: — Expenditure.—Buildings, £3B 16s lid; dynamos, £32 3s; instruments, £25 6s 3d; truck and car, £32 5s 4d; benzine, £4B, 18s lOd; sub-station, £4 5s 9d; oil, £10; distribution wages, £572 lis 3d; general expenditure, £145 2s 6d; purchase of current, £4679 lis 3d; repairs mains, £BBO 3s sd; repairs meters, £27 3s ltd; street lamps £lB5 13s 2d; salaries: office expenses and insurance, less proportion charged to house services £25) £1684 10s sd; rents, £2O; bad debts written off, £l3O 4s 4d; discounts, £IB6O 14s 8d; balance to nett revenue account, £12,126 14s 4d; total, £22.504 5s 4d. Income.—Sale of current, including borough premises, £21,284 5s 7d; street lighting, £1193 10s; sundry sales, £l2 9s 9d; re-connecting fees, £l4;'total, £22,504 5s 4d.