One reason is that the Government has always set upper limits to loan redemption periods.

Among other things, this means that the traditional connection between loan redemptions and the lives of associated assets has been broken.

Increasing loan redemption periods cannot be done without incurring costs in the form of interest charges.

This is mistaken because the charge to revenue accounts does not reflect cash flows, only loan redemptions.

We know that local authorities are forced by the law to charge loan redemptions (principal repayments) to revenue.

The loan redemption relates to the pattern of principal amounts chosen to contribute to the Loans Fund, say 1/60th each year.

The effect of forcing loan redemptions through revenue accounts was to link financing of the assets with accounting for them.

In this, we might keep the existing loan redemptions for the tax calculations but substitute depreciation charges for cost comparisons and management information generally.

An important effect of adopting a Loans Fund (or any other 'loans pool') is that a distinction has to be made between loan repayment and loan redemption:

Another reason is that many local authorities, as a matter of policy, accelerate their loan redemptions so that loans are repaid long before the end of the assets' useful lives.

As a consequence, whereas before the government used to control the amount of loan redemption by setting a maximum redemption period for each category of asset, now it has a global control.

That is why I have sponsored in the Assembly a bill that would establish the Health Care Professional Loan Redemption Program within the state's Department of Higher Education.

If depreciation is to be substituted for loan redemptions, then first of all the law must be changed, to take the principal repayments out of the revenue account so that they become balance sheet transfers as in business.

Now loan redemption is a matter for the Government to decide (at least as to minima), and presumably comes down to a judgement about how much the Government thinks that local authorities as a whole can afford to redeem in any year.

By setting the percentage at 4 per cent(as it did), it is requiring local authorities to spread loan redemption for its aggregate borrowing over approximately 50 years at maximum (which equates to 4 per cent on a reducing balance basis).