Media response - council debt
Published on 08 July 2020
Response to The Advertiser.
- I’m going to write a story today going over some of the main points in there [Budget/ABP]. I know people will be concerned with the debt, so could you please provide a response on the projected debt and why it’s essential to have the debt to be able to deliver services, etc.
Comments attributed to Anthony Spartalis, Chief Financial Officer
Our debt level at 30 June 2021 is forecast to be $117.5m, which is 86.9% of our annual rates income for 2020-21. In layperson’s terms, this can be likened to a household earning $100,000 a year, and having an $86,900 mortgage.
A growing and expanding city requires critical and new infrastructure to meet the needs of a growing population and we use debt to fund this expansion.
Primarily we can fund infrastructure through increasing rates or debt. Increasing rates increases the burden on the current community, even though the benefit of infrastructure will be derived over the life of the infrastructure (typically decades).
Using debt to fund infrastructure allows us to spread this burden over current and future communities – those that will ultimately benefit from the use of the infrastructure. This is a much more equitable way to spread the cost of infrastructure provision, and it’s what we refer to as “generational equity”, a principle we adopt to rate fairly.
What was the projected debt for 2019/2020 and what is that debt at present?
The 2019/20 Annual Business Plan projected debt levels at 30 June 2020 at $114.2m. At Budget Review 3, debt was forecast to be $95.5m as at 30 June 2020.
Why is debt lower than expected?
The reduction in year-end debt has resulted from a range of impacts including deferral of project expenditure, once-off savings across the organisation and an increase in some revenue items.
What is the City of Onkaparinga’s position on debt?
In the coming weeks and months, we will begin re-constructing the long term financial plan, from the bottom up, based on the objectives expressed by our current Elected Members, and taking into account community feedback received directly by Elected Members, or through Council’s current budget engagement processes. Both the council administration and our elected members agree that we must establish a debt limit as part of our Long Term Financial Plan. A revised policy will be established to support this, and strategies and initiatives will be introduced to minimise and reduce debt over the 10-year Long Term Financial Plan period. This will include ongoing review of our capital and renewal works programs, incorporating savings as they are identified, while allowing for known and anticipated pressures, and targeting an operating surplus over time.
What is the impact of operating under a debt limit?
Once an agreed debt limit has been established, we will modify our budgets, capital works plan and Long Term Financial Plan to ensure we operate within that agreed limit.
As a council we must deliver the projects and services required to meet the current and future needs of our rapidly growing city. If we are operating under a debt limit, some future projects may be delayed or only proceed if we receive external funding.
A debt limit may also impact asset service levels and the pace at which we can renew our assets across the city as part of our ongoing capital works program.