Financial Strategy Debt Levels and Interest Costs The Council Treasury Policy includes the Investment and Liability Management Policies. The Council has established a net debt cap of $140 million. Council has adopted the LGFA’s borrowing covenants in accordance with advice received from the Council’s Treasury Advisor. The Council is a shareholder and lender of the LGFA. This has enabled Council to achieve a lower cost of funding. The Council comfortably meets all the covenants the LGFA has set for Councils to borrow from it. The table below identifies each covenant and how Council compares against each one Policy Parameters and Covenants 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Council and Net Debt < 250% of total revenue 22.96% 51.62% 72.26% 84.55% 90.61% 95.89% 91.41% 83.37% 74.29% 62.01% LGFA Covenants Net interest < 20% of total revenue 1.14% 1.99% 3.03% 3.73% 4.11% 4.44% 4.49% 4.22% 3.75% 3.25% Net interest < 30% of rates revenue 2.32% 3.38% 4.89% 5.92% 6.54% 7.05% 7.09% 6.68% 6.04% 5.19% Liquidity > 110% 174.1% 131.2% 123.3% 120.0% 117.9% 116.2% 116.5% 117.4% 118.5% 121.5% Security on Borrowing Current ratepayers may form the view that borrowing is the answer to reducing rates increases. However, borrowing is not without cost. The immediate cost is interest. The Council generally does not offer assets, other than a charge over rates or rate The less obvious costs are: revenue, as security for general borrowing programmes through its Debenture Trust Deed. 1. The loss of flexibility Council would face if debt levels rose too high. At the extreme is when Sovereign nations are directed to undertake certain actions by Limit on Borrowing their bankers as happened in the recent GFC. In Council’s case it would be by Borrowing is a means by which those who pay for the cost of providing an asset can its Debenture Trustee. be better matched with those who benefit from the use of these assets. 2. Council and, as a consequence, ratepayers are impacted upon more severely by increases in interest rates. 2018-2028 Long Term Plan Page 165