OTHER STRATEGIES

In developing the Strategic Resource Plan, strategies have also been developed for Borrowings, Infrastructure, Service Delivery and Environmental Management.

BORROWING STRATEGY

Strategy

From 1998 to 2005 Council maintained a strategy of reducing outstanding loans. This reduced debt servicing costs and increased funding available for recurrent services. Reducing loans meant the utilisation of cash and investments to fund capital works. In 20022003 working capital was used to fund the new Recycling and Waste Collection Service. In 2003-2004 working capital was used to repay the $6.3M unfunded superannuation liability.

A new loan of $7M was taken out in May 2006 in order to restore working capital balances and in June 2007 a $5M loan was taken out to commence funding of the LeisurelinkFacility Replacement. In June 2008 a $3.125M loan was taken out to commence funding of the Bellarine Aquatic Centre and a loan of $12.675Mwas taken out in June 2009 to continue funding construction of the Leisurelink Facility Replacement. The final loan for Leisurelink of $12.5M was taken out in February 2010.

New Loans of $7.8M are included in the 2012-2013Budget to fund Ocean Grove ICC, Leopold Community Hub, Barwon Heads Early Learning Centre, Windsor Park Family and Children’s Hub and the City Library. In 20112012 there were no loans drawn down and these loans are deferred to 2012-2013 and revised to $25M.

The following table tracks the outstanding loan balance since 2002-2003.

Capital Funding Gap Analysis 2012-2013

In recent years Council has approved capital programs in excess of the internal operating cash generation. The following table provides analysis of internal funding available for capital versus proposed net capital expenditure.

$MNet
Depreciation / 46.90
Loan Repayments / (5.77)
Unfunded Superannuation / (3.30)
Internal Funding Available for Capital / 37.83
2012-2013Net Capital Program / 51.81
Property Asset Sales / (4.87)
Developer Contributions / (1.35)
Total Funding Required for Capital / 45.69
Difference required to be funded by loan in 2012-2013 / 7.86

The 2012-2013 program includes $42.0Mof capital works carried over from 2011-2012 and $19.0M of works carried over to 2013-2014.

The following table shows the total borrowings and available cash and investments over the last eight years. Councils debt position has been within the prudential limits required by the State Government. The reduction in the current ratio is a measure of Council’s current assets to current liabilities and is influenced by the timing of borrowings and the change in accounting treatment of long service leave.

Debt Management
Year / Outstanding Loans
$M’s / Cash and Investments
$M’s / Current
Ratio / Total Debt Repayments/ Rates
% / Debt Servicing Costs / Revenue % / Realisable Assets / Liabilities
2005-2006 Actual / 15.91 / 25.76 / 1.04 / 4.40 / 0.37 / 12.83
2006-2007 Actual / 16.58 / 31.93 / 1.13 / 4.05 / 0.37 / 10.17
2007-2008 Actual / 14.73 / 30.16 / 1.36 / 4.30 / 0.40 / 11.37
2008-2009 Actual / 26.22 / 53.13 / 1.82 / 1.71 / 0.38 / 9.44
2009-2010 Actual / 36.28 / 58.64 / 1.79 / 3.56 / 0.79 / 9.51
2010-2011 Actual / 31.51 / 66.30 / 1.74 / 4.86 / 0.80 / 9.45
2011-2012 Projection / 26.66 / 46.38 / 1.30 / 4.56 / 0.82 / 10.53
2012-2013 Budget / 53.77 / 50.59 / 1.31 / 5.52 / 1.17 / 8.86
Tolerances / >1.00 / <8.00 / <5.00 / >1.50

Future Borrowings

It is planned that the capital program for non commercial facilities will be generally funded from specific grants and charges and internally from funds maintained through depreciation. For new long life assets required in response to Council commitments, it is recognised that Council’s contribution may need to be funded via borrowings to avoid impacting on other 10 year capital works priorities.

Where Council is developing commercial facilities which will generate future income to pay back the initial investment, Council will also borrow to develop those facilities.

Council has identified the future development of the City Library, Armstrong Creek, Community Facilities and Landfill rehabilitation as projects to be funded by loans.

2012-2013 / 2013-2014 / 2014-2015 / 2015-2016
$'000 / $'000 / $'000 / $'000
Geelong Ring Road Employment Precinct / 0 / 2,100 / 0 / 0
Ocean Grove Sporting Infrastructure Plan / 0 / 2,000 / 0 / 0
Community Facilities / 6,958 / 21,170 / 1,290 / 7,500
City Library / 890 / 8,400 / 6,100 / 4,600
Armstrong Creek / 0 / 500 / 1,000 / 2,500
Corio Landfill Rehabilitation / 0 / 6,337 / 0 / 0
New Loans / 7,848 / 40,547 / 8,390 / 14,600
Deferred Loans / 25,000
Total Loans / 32,848

Council has committed to maintain loans at a level to ensure Council is at all times within the tolerances on the above ratios assessed by the State Government.

The following table sets out future proposed borrowings, based on the projected financial position of Council as at 30 June 2012. The loan balance can be compared to the net debt position which recognises Council’s significant cash balances.

Year / New Borrowings $’000 / Principal Repayment
$’000 / Interest Repayments $’000 / Loan Balance $’000 / Net Debt $’000
2011-2012 / 0 / (4,849) / (2,048) / 26,660 / 19,718
2012-2013 / 32,848 / (5,772) / (3,076) / 53,736 / (3,145)
2013-2014 / 40,547 / (8,120) / (5,692) / 86,163 / (33,787)
2014-2015 / 8,390 / (9,967) / (7,208) / 84,586 / (30,561)
2015-2016 / 14,600 / (8,878) / (7,313) / 90,308 / (34,124)

These principal and interest loan repayments have been factored into the strategic resource plan estimates. The impact of future loan borrowings and repayments on future budgets will be significant.

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2012-2013 Budget - City of Greater Geelong