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IOC pledges to curb council debt
IT’S Our County (IOC) has pledged to “re-rank or cancel” capital projects that have pushed Herefordshire Council’s borrowing debt towards £200m should the party it win power.
IOC leader Cllr Anthony Powers said it was now a priority to ensure the council lived within its increasingly limited means.
"Council debt levels are far too high, and rising all the time: and the available reserves are dangerously low. As debt goes on increasing this means that less money is available for the vital day-to-day services that residents expect and need, because capital debt repayments are made from income,” said Cllr Powers.
"After the 2015 elections IOC will re-rank or cancel capital infrastructure projects to reduce further debt and borrowing costs, and make sure the council lives within its means,” he said.
Yesterday (Monday) the Hereford Times revealed the council’s borrowing debt is edging ever closer to £200m as its use of short term “ends meet” loans from other authorities continues.
The final debt figure is feared to be far higher once accrued interest and other accounting adjustments are added on.
Latest figures show the council’s total external debt to be £195.74m.
Another £40m alone needs to be borrowed over the coming financial year to cover costs related to the joint county incinerator project.
More millions are needed for other capital and contractual commitments.
In October last year the council’s own statement of accounts for 2012-13 warned of the council being exposed to “significant risk” over interest rate movements on its borrowings and investments.
Then, the borrowing debt topped £157m.
The current £195.74m sum specifies the principal outstanding, figures in the council’s soon to be published annual accounts will be higher as they include accrued interest and other accounting adjustments.
Former council leader Cllr Terry James feared that with all the add-ons the debt could rise to around a quarter billion – a figure that could crush the council if interest rates rose.
“I remember being lambasted when the debt reached £48m and much of that inherited from Worcestershire. It seems that debt is now the council’s default position,” he said.
Independent group leader Cllr Sebastian Bowen said the “binding” debt had to be brought down to a more manageable level.
“We have certainly become too reliant on short term borrowing,” he said.
As measured by the capital financing requirement (CFR), the council’s underlying need to borrow as at March 31 was £216.65m.
The difference of £20.91m between the CFR and total external borrowing represents internal borrowing from reserves and working capital.
In October 2012, the Hereford Times revealed Herefordshire Council’s policy of borrowing from other local authorities to help make ends meet or, in the council’s words, “provide additional liquidity at a time when balances were relatively low.”
Loans collectively worth millions of pounds have been taken from other councils and local authorities to date.
With short-term interest rates being much lower than long-term rates, the council claims it is “cost effective” to take short-term loans from other local authorities.
By doing so, the council says it is able to reduce both borrowing costs and overall treasury risk.
But the council concedes that whilst such a strategy is “most likely to be beneficial” over the next 2-3 years as interest rates remain low, the policy will be kept under review and short-term loans will be replaced with longer term finance when it is deemed best to do so.
In 2013/14 the council’s weighted average cost of total borrowing was 3.48%. The weighted average cost of long term borrowing was 4.05% compared to 0.40% for short-term borrowing - 0.40% being the gross cost including brokers commission of between 0.03% and 0.10%).
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