LOCAL GOVERNMENT LOANS BOARD REVIEW OF OPERATIONS FOR THE YEAR ENDED 31st MARCH, 1950

Appendix to the Journals of the House of Representatives, 1950 Session I, B-17

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1950 NEW ZEALAND

LOCAL GOVERNMENT LOANS BOARD REVIEW OF OPERATIONS FOR THE YEAR ENDED 31st MARCH, 1950

Laid on the Table of the House of Representatives by Leave

To the Eight Hon. the Minister of Finance. The Local Government Loans Board presents hereunder a review of its operations for the year ended 31st March, 1950. Applications considered by the Board, while still being large in number and value, .•showed some decline from the immediate post-war years, indicating that a considerable part of the capital programmes of local bodies, necessarily deferred during the war period, has been completed or has been provided for. The summary given below sets out details of proposals considered by the Board, the figures for the previous year being included for comparison 1948-49. 1949-50. £ £ £ £ Applications .. .. .. .. 8,934,705 8,062,758 Previously referred back .. .. 1,195,593 911,717 £10,130,298 £8,974,475 Sanctioned — £ £ £ £ *New loans .. .. ..6,977,289 6,602,220 Redemptions .. .. .. 1,542,177 761,957 Referred back or declined .. .. 1,610,832 1,610,298 £10,130,298 £8,974,475 1948-49. 1949-50. *New loans — £ £ Waterworks .. .. .. 413,000 381,610 Drainage and sewerage .. .. 126,000 539,275 Roads and bridges (counties) .. .. 79,650 145,525 Street works (boroughs) .. .. 631,550 761,960 Municipal buildings, <frc. .. .. 22,750 433,950 Recreational facilities .. .. 15,650 262,875 Transport .. .. .. .. 1,353.336 160,00 C Housing .. .. .. .. 256; 100 163,695 Electricity supply—■ £ £ Power Boards .. .. ..1,441,500 1,320,850 Other supply authorities .. .. 828,100 41,860 2.269,600 1,362,710 Hospital works .. .. .. 1,263,100 1,277,050 Harbour works .. .. .. 208,000 511,000 Fire Board loans .. .. .. 18,900 109,540 Gasworks .. .. .. .. 57,500 134.500 Abattoirs .. .. .. .. 7,300 34;800 Educational authorities .. .. 117,778 6,730 Machinery .. .. .. .. 64,425 16,125 Flood damage and river works .. .. 43,275 Miscellaneous .. .. 72,650 257,600 £6,977,289 £6,602,220 Approval was given under section 47 of the Finance Act, 1929, to the diversion of unexpended balances of loans amounting to £7,363, and the use of capital moneys amounting to £16,756 was consented to under section 20 of the Finance Act, 1934.

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Significant figures in the tables quoted are the drop in requirements of power supplyauthorities, the continuance at a high level of hospital construction, and the decline in the number of renewal loans found necessary. Most power supply authorities would appear to have reached the stage where the major construction programmes are complete, and considerable portions of this year's authorizations are to enable Power Boards to reconstruct their reticulation systemsso that the carrying capacity of lines may be increased. Many supply authorities are taking this step now in anticipation of increased demand by consumers when the present shortage of electric power is relieved by the operation of generating-stations now uuder construction. High costs prevent all of this work being financed from depreciation funds, and it is sound accounting practice to charge to loan moneys the cost of capital extensions. - . . The cost of hospital work shows no decrease from the preceding years, and the Board reiterates its concern at the increasing burden on the community to provide these essential services. Under the existing system, for every £1,000,000 of loan sanctioned for hospitals, approximately £59,000 additional loan charges require to be met by the State each year. In effect, all capital expenditure is met by the State and no contribution is made bv the local authorities. The Board is of the opinion that the capital cost and resultant charges could be reduced if the various local projects were timed to avoid neighbouring Hospital Boards being obliged to compete for the same construction force. Renewal loans have not figured so largely in this year's operations, as borrowing authorities have been able to obtain their requirements over a longer term. Further, in most cases the provision for repayment of loans is on a more satisfactory basis, as the more popular and preferable method now is to redeem part of the loan each year.. Where local authorities raise loans which are to be repaid at the end of a given term from a sinking fund, the Board recommends that a careful watch be kept on the earningpower of sinking fund investments so that when, as has happened in recent years, the yield falls below the previously assumed level, the annual contribution to the fund can be augmented to ensure that sufficient cash is available at maturity to redeem theloan in full. A notable increase this year is the amount sanctioned for miscellaneous purposes. This increase is largely accounted for by the borrowing in anticipation of revenue by local authorities in respect of trading undertakings and by two authorities whose function is exclusively trading. In the latter cases the normal low local-body rate of interest is not normally available and for capital and current requirements bank overdraft is the most suitable method of borrowing. The increases under the headings of drainage, street works, buildings, and recreational facilities are largely -accounted for by large proposals of the Wellington City Council affecting those classes of work. During the year the Board was notified of results of polls taken on thirty-five loan proposals, 85 per cent, of which were successful. The oustanding feature is that, on an average, only f '26-4 per cent, of the eligible votes were exercised, the percentage ranging from as low as 8 per cent, up to a maximum of 58-5 per cent. The Board draws attention to the fact that over the years enabling legislation has been enacted so that for many non-essentials the necessity for a poll has been dispensed with, while for some essentials, notably water and sewerage and even improvements to existing systems, a poll is necessary. The Board considers that the rights of the ratepayers would be safeguarded if in all castes, as for electricity reticulation loans under section 15 of the Finance Act (No. 2), 1936, 5 per cent, of the ratepayers could demand a poll, with the further provision that the Board could in proper cases require the local authority to take a poll. Local-body debt, which reached a peak of £72,686,000 in 1931, has receded t0£57.,117,475-. £57.,117,475-. as at ,31st March, 1948, the-last date for which statistics are available. The domicile of this dtebt is as follows : United Kingdom, £5,970,900 ; Australia, £1,255,269 -

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New Zealand, £49,891,306. As opportunity offers, most overseas debt, which cannot be redeemed at maturity, is being transferred to New Zealand, with a resultant saving in interest. The following table illustrates the movement of gross local-authority debt.

It is the policy of the Board to limit the term of a loan to the estimated economic life of the asset to be acquired out of the loan moneys, and in considering this question the Board is guided by the technical reports submitted by the Government Departments reporting on the proposal. As a result of technical improvements and past experience, the Ministry of Works is at present engaged on a review of the estimated lives of various classes of assets, and schedules have been prepared indicating the maximum term likely to be approved in respect of the various types of assets incorporated in water-supply and sewerage schemes. That information has been circulated to local authorities, consulting engineers, and other interested parties. It is hoped that the information will prove useful to local authorities when formulating loan proposals, and as further schedules are prepared they also will be circulated. During the year the Board prepared a new edition of its handbook containing the Local Government Loans Board Act, the Local Government Loans Board Regulations, the Board's Rules of Procedure, and Instructions to Local Authorities. The Rules of Procedure and Instructions to Local Authorities have been revised and brought up to date. It is hoped that the information now contained therein will assist local bodies and their officers in complying with statutory and Loans Board requirements. The booklet is at present being printed, and as soon as copies are available a distribution will be made to all local authorities and others interested. Past procedure has been followed during the year in that the Secretary, in some cases with a Board member, has visited areas concerned in loan proposals, and the consequent inspections and discussions have been mutually beneficial. Throughout the year the Board s task has been simplified by ever-ready co-operation of local bodies which submit applications and of the various Government Departments which submit reports on relevant phases of each application. B. C. Ashwist, Chairman. The Treasury, Wellington, New Zealand.

Approximate Cost of Paper.—Preparation, not given : printing (634 copies), £7 10s.

Price 3d.]

By Authority: E. E. Owen, Government Printer, Wellington —1950 b

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London. Australia. New Zealand. Total. £ £ £ £ 1915 .. * * * 24,538,721 1920 * * * 30,187,942 1925 * * * 53,353,466 1930 .. * * * 71,207,539 1931 .. 17,533,425 8,574,529 46,578,082 72,686,036 1935 16,088,525 2,564,693 52,592,240 71,245,458 1940 .. 12,284,225 2,264,220 54,938,525 69,486,970 1941 9,893,025 2,198,211 55,883,451 67,974,687 1942 .. 9,381,825 2,043,718 55,220,447 66,645,990 1943 .. 8,461,325 1,851,273 53,656,498 63,969,096 1944 7,837,225 1,624,458 53,801,145 63,262,828 1945 .. 7,074,925 1,544,382 52,618,630 61,237,937 1946 .. 6,604,725 1,484,400 51,936,739 60,025,864 1947 .. 5,990,325 1,286,783 50,488,345 57,765,453 1948 .. 5,970,900 1,255,269 49,891,306 57,117,475 * Not available.