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Council's Finances - Proposed Loan Borrowings

The draft Operational Plan and Budget identifies that Council intends to borrow $54.46 million over the course of the next four years. How can Council justify these loan borrowings and what factors are taken into consideration when determining if loans are an appropriate source of funding for projects?

Council has a long standing practice where loan funds are only considered for infrastructure investment (Capital Expenditure) which provides inter-generational benefit.

Council’s loan liability for its Consolidated Fund as at 30 June 2018 was $31.619 million. The breakdown of this liability by fund is as follows;

General Fund 

$13.914 million

Water Fund 

$2.018 million

Sewer Fund 

$15.687 million

Total Loan Liability 

$31.619 million

Council has identified loan borrowing of $54.46 million over the course of the next four year forward estimates. Borrowings will be used to fund, or in some cases, part-fund major infrastructure projects which will have significant and demonstrated benefits to the residents of Wingecarribee Shire over the coming decades.

Council has considered the impact of the proposed borrowings, and subsequent debt servicing as part of reviewing the Long Term Financial Plan. Council has sufficient financial capacity to fund these loan repayments and is still well within the industry benchmark for debt servicing (debt service ratio).

It is projected that Council’s debt service ratio will not exceed 6.05 per cent of revenue from continuing operations over the course of the next ten years. The industry benchmark for growing councils is 20 per cent while the industry benchmark for councils not experiencing growth is 10 per cent.

While Council’s debt service ratio is substantially below the industry benchmark, Council has been presented with a balanced budget over the course of the 10 years of the Long Term Financial Plan. Any increase in loan borrowings beyond what is proposed would require additional funding to be identified to service the recurrent loan repayments.

Council has a Loan Borrowings Policy which was adopted in May 2018.

To view this policy visit www.wsc.nsw.gov.au/uploads/3266/loan-borrowings-policy-adopted-23-may-2018.pdf.

This Policy outlines the factors which are taken into account when Council considers loan borrowings as an appropriate source of funding. These factors include:

  • The financial impact of the proposed borrowing on Council’s Long Term Financial Plan, Delivery Program and Operational Plan including scenario analysis in the case of changes to market interest rates; and any positive impact of the capital works funded by the proposed borrowing.
  • Decisions to utilise loan borrowings should be made on a case by case basis, ensuring there is alignment with Council’s strategic planning and capital program.
  • Where appropriate, borrowings for infrastructure projects will require a fully costed and evaluated business plan, with all alternatives considered and outcomes identified. This may also come in the form of a Masterplan or updated strategy. Where required, Council is to comply with the Office of Local Government’s circular regarding Capital Expenditure Reviews.
  • Internal loans should be considered as an alternative approach to funding capital expenditure. This approach would be on the basis that Council has sufficient available surplus cash within identified General Fund cash reserves which has no specific financial commitments within Council’s Long Term Financial Plan.
  • The proposed structure of the borrowings and the proposed way in which the Council will procure the borrowings to achieve competitive and favourable terms.
  • The Debt Service Ratio, which is an indicator of Council’s ability to service its borrowings, should remain below 10 per cent.

Last Updated: June 5th, 2019
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