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CVC’s new $197m debt ceiling: Q&A with Ashley Lindsay

The Independent put the following questions to Clarence Galley Council (CVC) general manager Ashley Lindsay, regarding the decision at the CVC meeting on Tuesday, to ‘Update its Loan Borrowing Policy to reflect the increased Sustainable Debt Level of $197M’, as outlined in the Ernst & Young March 2021 Debt Review Update.”

GH: There was talk at the April 27 CVC meeting that the extra borrowing capacity was not about the $24.5m for holiday parks – yet the change to the borrowing policy specifically says it is: “EY’s updated 2021 Debt Review report supports an additional $24.5M in General Fund borrowings on a consolidated basis to fund infrastructure upgrades to the Clarence Coast Holiday Parks.” Also, CVC’s media release, Borrowing capacity at Clarence Valley Council ensures financial sustainability, does not mention this fact.  – Can you explain the apparent disconnect?


AL: That’s a fact, Geoff. The EY report states that Council’s General Fund has the capacity to borrow an additional $24M if Council was to proceed with the upgrade works in the Holiday Parks. The Holiday Parks Plan is still in Draft form and this Council has made it very clear that they have no intention of progressing this plan at this stage and it will be a decision for the new Council as to whether this Plan is adopted and how those upgrade works are to be funded. This Council has no intention of borrowing the $24M.


GH: I thought that the holiday parks were, at a policy level, meant to be self-funded, as suggested in the generic Crown Reserves POM – “Any maintenance or improvement needs to recognise that the public purse is limited and that Council has an obligation not only to meet the local neighbourhood’s recreational needs but to also minimise the financial cost to the wider public in meeting that obligation.” – Can you explain why funding the estimated $24.5m for park upgrades from the general fund isn’t in conflict with the POM?


AL: If Council were to borrow the funds for the Holiday Park Upgrades the servicing of the debt (repayment of the principal and interest) would be funded from the Holiday Park revenue, not from the General Fund. The EY report confirms that as a stand-alone business entity the $24M borrowing for the Holiday Parks would be considered as a “High Risk” debt amount.


GH: During debate of another issue, councillors Baker and Williamson were strident in their criticism of a Cr Clancy Notice of Motion, regarding it not indicating that public exhibition would occur, and yet they were silent on exhibition of the amended Borrowing Policy – so, why were the changes to the Borrowing Policy deemed as minor and not needing to go on exhibition?


AL: I can’t speak for the Councillors, but I don’t believe the changes to the Borrowing Policy required public exhibition.


GH: EY states that CVC can expand debt capacity “due to [its] predominantly improved financial performance” and, given that CVC was deemed to be operating at “moderate risk” when it had a debt capacity of $139m (of which $131m was in play in 2016), does that mean that the moderate risk ceiling is now assessed at $197m?


AL: Yes, that’s correct. The EY report indicates that the ‘Moderate Risk’ debt range is $140M to $197M, the ‘Conservative’ debt range is $100M to $140M. Council’s position as at, 30 June 2020 was $104.1M which is within the ‘Conservative’ debt range.


GH: What has happened during those four years that has facilitated the $66m rise in acceptable debt?


AL: Council’s Debt at, 30 June 2016 was $129.7M as at, 30 June 2021 this will reduce to $95.9M. Over the last 3 years, the IPART approved SRV has also increased Council’s Rate Revenue by approx. 25% and this along with reductions in Council’s operating costs as a result of efficiency savings has resulted in Council’s financial sustainability improving.


GH: Are low-interest rates part of that dynamic and, if so, what does that mean if interest rates increase, as far as the debt ceiling is concerned?


AL: I can’t answer this question with any authority.


GH: Given the report’s outcome now potentially means that ratepayers can be called upon to finance (via the general fund) holiday park upgrades, which are not services for ratepayers; why is the EY report confidential?


AL: No that is incorrect. If Council were to borrow the funds for the Holiday Park Upgrades the servicing of the debt (repayment of the principal and interest) would be funded from the Holiday Park revenue, not from the General Fund.

The full EY report is confidential because EY requested it to be