CONFIDENTIAL ##
機密
XCC(76)85
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The Authority's cash flow arrangements
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The foregoing proposals represent a red-line exercise to give the Authority a more rational financial structure from 1st April 1976, without any inherited indebtedness. It is necessary also to examine the financial arrangements between the Government and the Authority insofar as these affect the latter's cash requirements.
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At the present time, the Housing Authority makes a surplus on Group A estates and has inherited a cash deficit on Group B estates. The cash deficit is covered by grants from general revenue. The surplus on Group A estates is used to finance new estates. To the extent that the surplus is insufficient to meet its cash requirements on capital account the Authority can borrow from the Development Loan Fund. That is to
say:
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(a)..
(b)
the Authority borrows from the Development Loan Fund, and pays interest on the borrowings, in order to pay land premia; and
the Authority borrows from the Development Loan Fund to meet its net cash requirements for building new estates, and pays interest on these borrowings.
As regards paragraph 10(a) (borrowings to pay land premia), the existing arrangement is that the Authority makes an actual payment to the Government calculated at one third of the full market value, less formation costs. It has been argued in the past that the Authority should not pay any premium but these arguments were not previously accepted because they were tantamount to suggesting, first, that the Government incurs no opportunity cost for handing over land to the Authority and, second, that the Government should make a further hidden subsidy towards public housing. On the other hand, explicitly to require the Authority to pay for land (even if only at a fraction of full market value which in itself involves a subsidy, albeit a defined one) has the effect of reducing the Authority's cash availability, thereby putting the Authority in the position of having to borrow that much more to pay interest on borrowings.
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As regards paragraph 10(b) (borrowings to supplement the Authority's.cash requirements for building new estates), strictly speaking there is a compelling case for loans to attract interest so as to reflect the opportunity cost to the Government of making loans available for public housing (while any rate of interest below market rates would, like the concessionary land premia, reflect explicitly the Government's subsidy towards public housing). But, for as long as the Authority is continuing to require fresh borrowings from the Development Loan Fund, and these
CONFIDENTIAL
機密
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