I WOULD like to clarify the recent commentaries and queries from readers.

Q: Why is there a need for town councils to accumulate sinking funds?

Town councils are required to maintain sinking funds to finance long-term and expensive works such as replacement of lifts and water supply systems, repainting, re-roofing and electrical re-wiring works. We also use sinking funds to co-pay for lift upgrading so that residents pay less. By gradually accumulating sinking funds, HDB residents avoid pay an additional lump sum each time these major works are done.

The 14 PAP town councils manage about 900,000 HDB flats or 9,000 HDB blocks. After almost two decades, our sinking funds amount to about $2 billion or $200,000 per block. This is not excessive as the overhaul cost of just one lift for a 12-storey block costs about $100,000.

Some readers may have the impression that we are investing with short-term operating funds from S&CC collected. We would like to clarify that the investments are made with sinking funds and accumulated surpluses, meant for long-term use.

Q: How are our sinking funds managed?

Our investment decisions are guided by the Ministry of National Development's guidelines and approved financial advisers and/or professional fund managers. We are mindful that overly conservative investments generate low returns and do not sufficiently protect against inflation, thereby building up pressure to increase S&CC.

We spread our investments prudently over a mix of deposits, securities and other financial products. Our aim is to generate higher returns during the good years to offset lower or even negative returns during the bad years, so that we can still achieve a healthy average return over the medium term.

We invest our sinking funds with a longer-term view. We recognise that the investments in Lehman Brothers-related products are not small in absolute terms ($16 million), even though they are only 0.8 per cent of the funds. These losses arise from the unprecedented global financial situation. Institutions and investments that were considered safe by most have failed and are now deemed high-risk on hindsight. Of the eight town councils exposed to Lehman Brothers either directly or indirectly, six had their investments made by fund managers.

The town councils invest our funds prudently as we understand our responsibility to our residents. We have not done poorly or mismanaged the funds. Over the last six years, our average annual investment return exceeded 3 per cent. This is more than thrice the average annual interest of about 0.9 per cent from fixed deposits, and greater than the 2.9 per cent from SGS 10-Year Bonds over that period.

We assure our residents that we are financially secure. Estate maintenance and improvement plans will not be affected.

Q: How will the PAP town councils make sure that their residents are kept informed of their town councils' finances?

Our financial statements are prepared in accordance with the Financial Reporting Standards and audited and published annually. Residents can access our financial statements and annual reports via the town councils' websites or offices.

As our investments and circumstances differ, the PAP town councils will reach out to their respective residents directly. We will continue to explore ways to better communicate with our residents and keep them informed of our finances.

In conclusion, we will continue to manage our funds in a prudent and pragmatic manner. We assure residents that their estate will be well looked after and that there are sufficient funds to properly maintain their town, both now and in the longer term.

Dr Teo Ho Pin
Coordinating Chairman of PAP Town Councils.

This article was first published in The Straits Times on November 28, 2008.