Using Loan Funding for Capital Works and Replacement

Council has long had a policy of using loan funding for Capital Works and Replacement. Doing so spreads the burden of capital expenditure over current and future rates.

Following on from my post introducing this years budget, if you look deeply into this years draft budget you will see that we are planning to have $15.7m of loans outstanding as at June 2018. This is $ 1.0m more than predicted for June 30 this year.

Our capital expenditure will actually grow by $ 3.5m during the next twelve months.

Most of this will be to fund our contribution to the Brownhill Creek Flood Mitigation Scheme. Part will be to fund the upgrade of the Goodwood Oval Grandstand. Part to provide detailed concept (project shovel ready) plans for the Goodwood Oval and Millswood Sport Grounds improvement plan. The Unley Oval improvement plan and the King William Road master plan will also be funded this way.

Whilst committing funds to these projects we will be paying back our current loans to the tune of $ 2.5m.

Loans of such magnitude can be frightening to some not personally used to loans of this size, including elected members. Having said that I remember when I first secured a home loan I could borrow 7 times my annual wage. Using that formula Council could conceivably borrow $ 280m.

That said this will not ever happen. We have a commitment to borrow no more than 80% of our net operating revenue (or approx $ 32m on today’s revenue).

Some might also suggest that we should not penalise future generations by burdening them with “such high” loans. If you have the cash to do this that is a reasonable observation.

The only way we could do this would be to increase the rates. If we did this to fund just $ 1.0m of capital expenditure we would need to increase rates in the order of 2.5%, nearly as much again as what we are currently proposing this year.

Council will continue therefore with a policy of using loan funding for Capital Works and Replacement.

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