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Council to borrow around £34m over this financial year
HEREFORDSHIRE Council is on course to borrow around £34m over the 2013/14 financial year with at least half of that sum found through short-term loans from other local authorities.
An estimated £34m of new loans are needed to cover the cost of the council’s 2013/14 capital programme and a forecast fall in reserves.
This week the council confirmed it remains committed to using more short term local authority borrowing, defending the policy as providing savings.
On current estimates only around half of that £34m figure will be found through the Public Works Loans Board (PWLB).
As at July last year, the council’s overall borrowing debt had topped £173m but would have been higher had reserve funds not been used to meet needs.
The council has a policy of utilising short-term borrowing from other local authorities to fund its capital programme and for short-term liquidity needs claiming this is good practice as the rates are below levels available from other sources.
Short term loans are now said to be a key part of treasury management strategy and, this year alone, are expected to deliver savings against the revenue budget for funding the capital programme.
The council can capitalise interest costs relating to interest paid on borrowing used to fund large capital schemes that take a substantial time to be utilised.
Such interest, incurred at the construction or installation phase, may be added to the cost of the associated asset. Around £300k of capitalised has been included in the council’s 2013/14 budget for capital financing costs.
The use of short term loans will continue to be a key part of our treasury management and means we are able to deliver savings against this year’s revenue budget for funding the capital programme.
At the end of May this year short-term borrowing from other local authorities consisted of eight loans totalling £21m.
In the two months to May 31 the council has taken out six loans for between £2m-£5m for periods ranging from five days to 153 days. The interest rates varied from 0.34% to 0.38%, including brokers commission.
No long-term loans have been taken out in the period to date and in recent weeks PWLB rates have risen significantly following a follows a worldwide increase in the yields on government debt. PWLB rates are set at their equivalent gilt yields plus a margin of around one per cent.
The council says the costs and benefits of longer term borrowing, relative to shorter term borrowing, continue to be monitored and discussed with its treasury adviser Arlingclose. Despite the uncertainty over future movement in PWLB rates, at present the advice from Arlingclose is to continue using short-term loans and delay taking out more expensive longer-term finance.
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