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2014-06-26 Budget Meeting Attachment I
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ATTACHMENT I
Council Policy
2014/15 DEBT POLICY
Corporate Plan Reference: A sustainable Council
Endorsed by Council:
Policy Author: Director Corporate Services
POLICY BACKGROUND
The purpose of this policy is to ensure the sound management of Council’s existing and future
debt. The policy will provide clear guidance for staff in the management of Council’s debt portfolio
and maintenance of appropriate debt and debt service levels.
This policy applies to all Councillors and Council staff and extends to all borrowing activities of
Council and any controlled entities.
COUNCIL POLICY
Council will utilise a debt management strategy based on sound financial management principles
and ensure net debt (net financial liabilities) remains within financial sustainability targets.
Borrowing Purposes
Council will not utilise loan funding to finance operating activities or recurrent expenditure.
Council undertakes full analysis of all funding options as outlined in the Long Term Financial
Model, including a forward program of capital works, to determine loan funding requirements.
Council recognises that infrastructure demands placed upon Council can often only be met through
borrowings, but will always be mindful of the additional cost incurred by the community when
assets are acquired through borrowings which increases the cost of providing capital infrastructure.
Council will endeavour to fund all capital renewal projects from operating cash flows and borrow
only for new or upgrade capital projects, having regard to sound financial management principles
and giving consideration to inter-generational equity for the funding of long term infrastructure
projects.
Where capital expenditure is deferred from one year to the next, the drawdown of approved loan
funds will be reviewed to minimise interest expenses.
Borrowings for infrastructure that provides a return on assets will take priority over borrowing for
other assets.
Debt Term
Where capital projects are financed through borrowings, Council will repay the loans within a term
not exceeding the life of those assets, and over a term that optimises cash flow efficiency. Current
loans are planned to be repaid within a twelve (12) year term.
If surplus funds become available, and where it is advantageous to Council, one-off loan
repayments will be made to reduce the term of existing loans.
In an environment of fluctuating interest rates, and where there is a distinct economic advantage to
Council, consideration will be given to renegotiating any outstanding loans to obtain the best long-
term benefit to Council.
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Section 2
STRATEGIC POLICY - 2014/2015 DEBT POLICY
Repayment Ability
Council will maintain close scrutiny of debt levels to ensure that relative sustainability indicators will
not exceed target parameters recommended by Queensland Treasury Corporation and the Local
Government Regulation 2012.
Borrowing Sources
Council will raise all external borrowings at the most competitive rates available and from sources
available as defined by legislation. Consideration will be given to provision of loans to business
units from surplus cash reserves held by Council by way on an internal loan.
Proposed Borrowings
Pursuant to section 192 Local Government Regulation 2012, Council must prepare a debt policy
each year that states the new borrowings planned for the current financial year and the next 9
financial years. Proposed borrowings are contained in Appendix A.
Leases
Financing alternatives for asset acquisition includes the option of leases. Leases are defined as
being either operating leases or finance leases.
Operating leases are undertaken for office equipment, computer equipment and vehicles
under master lease facilities subject to periodic review.
Finance leases are essentially loans and require prior approval by Treasury under the
Statutory bodies Financial Arrangements Act 1982.
Internal Loans
The provision and approval of an internal loan will depend on the availability of surplus funds at the
time of application and the capacity of either the business or operational activity to repay the loan.
All applications for internal loans will be made by reference to the Financial Services team for
consideration in accordance with the Long Term Financial Forecast.
The term of the loan will be appropriate to the life of the asset being financed.
The interest rate will be the sum of (a) the equivalent QTC borrowing rate for the proposed
term; (b) the QTC administration charge; and (c) an additional margin above the QTC
borrowing rate. In all cases, where business activities are subject to the provisions of the
National Competition Policy, the cost to the business will be no less than what would apply to
an equivalent private sector business.
The interest rate applicable to internal loans relating to operational activities of Council will be
the actual borrowing cost from QTC including administrative charges.
Council may, upon reasonable notice being given, require repayment of part or all of the
balance of the loan at any time, which would require the business activity to convert the
outstanding balance of the loan to an external facility.
The balance of the outstanding loan will be recorded as a liability in the balance sheet of the
business activity and an asset in the balance sheet of Council.
Provision for the repayment of the loan will be included in the annual budget for the business
activity.
Reporting
Details of outstanding loans will be reported annually in Council’s Financial Statements and Annual
Report.
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Section 3
STRATEGIC POLICY - 2014/2015 DEBT POLICY
ROLES AND RESPONSIBILITIES
Pursuant to section 192 of the Local Government Regulation 2012 detail of the proposed
borrowing for the current year and the future 9 years will be prepared annually as part of the
budget process.
Applications outlining proposed borrowings will be forwarded to the Minister for Local Government
for approval.
Credit Reviews will be undertaken periodically by the QTC on behalf of the Minister for Local
Government.
Loan proceeds will be drawn down subject to cash flow requirements annually so as to minimise
interest expenses.
All lease proposals will be referred to Financial Services for evaluation against the QTC Asset
Financing Model to assess alternatives for asset acquisition and to ensure statutory compliance.
RELEVANT LEGISLATION
Local Government Act 2009
Local Government Regulation 2012
Statutory Bodies Financial Arrangements Act 1982
Statutory Bodies Financial Arrangements Regulation 2007
Version control:
Version Reason/ Trigger Change (Y/N) Endorsed/ Reviewed by Date
1.1 Annual Review Wayne Jensen 02/06/2014
1.0 Create new Wayne Jensen 23/12/2013
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Section 4
Appendix A
Schedule of Proposed Borrowing:
2014/2015 2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021 2021/2022 2022/2023 2023/2024
$,000 $,000 $,000 $,000 $,000 $,000 $,000 $,000 $,000 $,000
Proposed Borrowings
794 0 0 0 0 0 0 0 0 0
Borrowing Purpose Capital works projects as outlined in the adopted budget schedule.
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