TRANSACTIONS OF SECTION V. 741 



2. Depreciation and Sinking Funds in Municipal Undertakings. 

 By Stanley Horsfall Turneh, M.A. 



The questions to be raised centre about tlie fact that all municipal under- 

 takings are started with borrowed capital which must be repaid within statutory 

 periods, and it is important to understand how this initial burden should be dis- 

 tributed as between the present and the future. Usuallj in reproductive under- 

 takings the sinking fund is based upon the life of the subject, and beyond this 

 there'^is, in general, no obligation to provide reserves. No decisive answer has at 

 any time been given to the question whether depreciation funds should be kept, 

 with the result that municipalities differ very widely in their methods. A few 

 have adequate depreciation funds, others have either inadequate ones or none at all. 

 According to the latest returns the annual average depreciation fund for muni- 

 cipal tramways in England and Wales is only just over one half per cent, on 

 the capital borrowed, and tramways show the largest percentage of any municipal 

 industry. It is urged by those municipalities which have no depreciation fund 

 that the sinking fund, being based upon the life of the subject, is the depreciation 

 fund, and that if the loan is entirely repaid when the plant is worn out or obsolete 

 the present has done all that is' necessary. Their successors must borrow to 

 reinstate the works. The only alternative, as the law now stands, is to have a 

 depreciation fund in addition ; and if this were a true depreciation fund it would 

 be too great a burden upon the first generation, since the life of the subject is 

 taken into account twice over. Those municipalities which voluntarily lay aside 

 a full depreciation fund urge that once an undertaking is started its value 

 should be maintained, as in a private company working a similar undertaking, 

 and that the sinking fund is an extra requirement enforced by Parliament because 

 it is deemed undesirable to allow any permanent local debt. While this second 

 view recommends itself as the sounder finance for reproductive undertakings, there 

 are serious objections to it so long as the sinking fund is fixed on the present 

 principles. The first generation is burdened twice as much as the second and 

 succeeding generations. It not only repays the whole debt, but also builds up an 

 equal capital for future generations" whicli have no sinking fund to pay because 

 their capital is no longer borrowed. The difficulty arises because the statutory 

 requirements, which contemplated none of the recent extensions of municipal 

 activity, are not suited to some of the present undertakings, and in these cases a 

 depreciation fund should be made obligatory, while the sinking fund should be 

 entirely dissociated from the life of the subject. 



FRIDAY, SEPTEMBER 11. 



The following Papers and Eeport were read : — 



1. The Wealth of the Empire, and how it should be used.^ 

 By Sir Robert Giffen, K.C.B. 



The paper is intended to initiate a discussion on the objects of the expenditure 

 of the aggregate wealth of the British Empire, whether by individuals or by the 

 State. 



For the purpose of the discussion it is assumed, on the basis of recent investiga- 

 tions, that the aggregate income of the people of the United Kingdom may be 

 placed at about 1,750 millions, and the aggregate wealth at about 15,000 millions. 

 The data as to the rest of the empire are not so familiar, but the aggregate 

 income of the whole empire is put at 3,130 millions, including 270 millions for 

 Canada, 210 millions for Australasia, and 600 millions for India. The corre- 

 sponding capital for the whole empire is assumed at 22,260 millions, including 



! Pji^ljshed in the Journal of the Hoyfd St(ftis(iccd Sopitty, Oplobei: \^0% 



