June 2016 - Ref: 7/16
Local Government Borrowings for 2016-17
Local Government Finance and Funding
This Bulletin is to advise local governments of the procedure for submitting borrowing applications for 2016-17.
In accordance with the Statutory Bodies Financial Arrangements Act 1982 (SBFA Act), a local government is required to obtain the Treasurer’s approval to undertake borrowings. Under a General Approval dated 23 May 2003 and issued by the Queensland Treasurer under the SBFA Act, the Department of Infrastructure, Local Government and Planning may grant approval for local governments to borrow from Queensland Treasury Corporation (QTC).
Separate approval of the Treasurer is, however, still required for borrowings not sourced from QTC. The approval process of non-QTC borrowings is not covered in this Bulletin.
Stage 1. Long-Term Financial Forecast - Close of business, Friday 26 August 2016 1
|How to submit||
Attn: Local Government Finance and Funding
Mark Snow, Senior Project Officer
1 For any local government with QTC borrowings as at 30 June 2016 and those seeking to borrow in 2016-17, a copy of Council’s latest Long-Term Financial Forecast is required to be submitted to QTC by 26 August 2016 to enable QTC to complete the Annual Borrowing Assessment (ABA) process.
2 Full borrowing applications can be submitted earlier than 31 January 2017 and the Department will endeavor to provide a response to Council within four months of receipt of all required information.
Long Term Financial Forecast
The Department has engaged QTC to undertake a comprehensive Annual Borrowing Assessment (ABA) process of local governments to provide it with information about:
- the ability of a local government to service existing debt as well as any new debt requested, or
- whether a further more detailed Credit Review is required to determine the ability of a local government to service existing debt as well as any new debt requested.
QTC may determine that a more detailed Credit Review is required if the local government is facing significant challenges and/or is undertaking large borrowings. Refer to the ‘QTC Credit Review’ section for more information.
The information required by QTC to complete the ABA process is the same as that required by the Department to assess loan applications, therefore reducing the duplication of effort and administrative burden on local governments in seeking loan approvals.
Full Borrowing Application
The Department will assess the supplied full borrowing application for completeness and reasonableness to determine whether the local government has adequate financial capacity to meet its proposed loan servicing commitments. In the completion of its assessment, the Department will refer to the advice provided by QTC as a result of the ABA process and may also request further information from the local government.
Applications for borrowings can be submitted for consideration by the Department up until close of business, Tuesday 31 January 2017. This deadline takes into account the timeframes needed to undertake an assessment, make any necessary enquiries of Council, and allow for the draw down of any approved borrowings through QTC. However, the Department strongly encourages local governments to lodge borrowing applications as early as possible in the financial year. In doing so, this will ensure that applications are processed in a timely manner and any approved funds are available prior to 30 June 2017.
If the long term financial forecast included in its borrowing application is significantly revised when compared to the long term financial forecast provided to QTC in August, the details of the revisions must be communicated to QTC and the Department. These revisions will need to be reviewed and assessed against the information used for the ABA process and may lead to QTC determining that a credit review is now necessary.
When the assessment has been completed, the Department will advise the local government and QTC of the outcome. If the requested borrowings are approved, the local government may then contact QTC directly to arrange the drawdown of any approved borrowings 3.
Key conditions attached to any borrowings approved in the 2016-17 financial year include:
- Maximum loan term of 20 years. A local government may, however, choose a shorter term.
- Must be drawn down prior to 30 June 2017.
- Approval does not carry forward to subsequent financial years.
Should undrawn, approved borrowings subsequently be required in future financial years, a new borrowing application will need to be submitted.
Timing of borrowing application assessments
Applications for borrowings will be assessed in order of receipt by the Department, except for those local governments that:
- are required to participate in a QTC Credit Review in the 2016-17 financial year. The Department will process borrowing applications for local governments required to participate in a QTC Credit Review in 2016-17 once the relevant Credit Review has been finalised
- advise of an urgent need to access any approved borrowings by a specific date. In this event, every effort will be made by the Department in conjunction with QTC to expedite the review of the loan application so that borrowings can be drawndown by the specific date.
The Department cannot provide an average estimated turnaround time for the assessment of borrowing applications. Factors that will impact on the amount of time needed to undertake an assessment include:
- whether a Council has supplied all the required documentation
- the quality and defensibility of the long-term financial forecast supplied
- the timeliness and sufficiency of responses to enquiries made to Council.
To promote the quality and defensibility of the projections in the long-term financial forecast, Councils should ensure:
- historical figures correspond with data contained in the relevant Audited Financial Statements
- growth rates are appropriate
- any substantial fluctuations in projections are explained or substantiated.
This may require the inclusion of additional notes or supporting documentation, as Council deems necessary.
Once approvals for borrowings are granted by the Department, Council can actively work with QTC to determine an appropriate timeframe for the drawdown of any approved borrowings. There is no requirement that approved borrowings be drawn down immediately.
The full borrowing application (see “Documentation Required” section) should be compiled in the following manner:
- completed and signed borrowing application checklist on the front of the application, with hard copy documents on the pages following, and
- CD or USB containing copy of Council’s long-term financial forecast (using the QTC long-term financial model) and any soft-copy documents, to be affixed to the front of the application.
The completed application should be submitted by Tuesday 31 January 2017 by mail to:
Attn: Local Government Finance and Funding
Department of Infrastructure, Local Government and Planning
PO Box 15009
City East QLD 4002
Please note that electronic applications are unable to be accepted by the Department due to email size constraints. Local governments are therefore advised not to email the forecast model to the Department as may have occurred in previous years.
3From 1 July 2016, a new Variable Rate Loan will be available for short term loans on a limited basis. QTC recommends that borrowers contact their QTC Account Managers to discuss borrowing requirements and loan structuring options prior to drawdown.
The Department requires the following information in order to assess an application for borrowings (please also refer to the notes below table):
|Long-term financial forecast model 1|
|Adopted 2016-17 Debt Policy 2|
|2016-17 Schedule of Capital Works 3|
|Application checklist ( 159 KB) completed and signed by the Mayor and Chief Executive Officer 4|
Please also include any other information Council considers relevant to the application.
Note 1: Long-term financial forecast
The long-term financial forecast must:
- be based on the QTC long-term financial model (LGFM Version 3.0.2 or later)
- be complete and consistent with the long-term financial forecasts requirements under section 171 of the Local Government Regulation 2012 and section 163 of the City of Brisbane Regulation 2012
- show 2016-17 as the budget year
- contain the borrowings sought for 2016-17, together with planned borrowings in forward years (consistent with the Adopted 2016-17 Debt Policy). Loan terms and associated repayments are also to be included in the financial forecast.
The QTC long-term financial model (QTC LGFM Version 3.0.2 or later) to be included with the borrowings application for 2016-17 should include five years of historical values (from 2011-12 to 2015-16) and ten years of forecast values (from 2016-17 to 2025-26). The Department encourages local governments to work closely with QTC in using or updating the QTC LGFM.
Note 2: Adopted Debt Policy
A copy of the Adopted 2016-17 Debt Policy (refer to section 192 of the Local Government Regulation 2012 and section 184 of the City of Brisbane Regulation 2012) must be included. Council must ensure that the total borrowings requested for 2016-17 is consistent with the Adopted 2016-17 Debt Policy.
Note 3: Schedule of Capital Works
A project that constitutes more than 50% of a local government’s capital expenditure in any one year, or has a value greater than $10 million, should be identified separately in the detailed list of capital works projects as a "significant project" and a brief explanation of the project should be provided.
Note 4: Application checklist
The borrowing application, including the financial forecast, is required to be certified by the Mayor and the Chief Executive Officer. The certification confirms that the borrowings will be used for lawful, capital purposes and that a native title risk assessment has been conducted on any relevant land.
The 2016-17 Loan Borrowings application checklist (attached to this Bulletin) contains 2 pages. Sections marked with an asterisk are mandatory. Please ensure that both pages are completed.
Breakdown of borrowings sought into major project areas.
As the Department does not currently undertake loan borrowing assessments at the individual project-level, the amount of loan borrowings requested for 2016-17 does not need to be allocated to each individual project listed on the Schedule of Capital Works. However, it is mandatory that Councils complete the “Requested Borrowings breakdown” section on the application checklist. This section helps the Department understand to which major project areas the proposed 2016-17 borrowings are planned to be allocated. Where Council does not know the exact dollar ($) breakdown by project area, the % approximation column can be used instead.
It is expected that the projects proposed for funding via borrowings form part of a local government’s asset management planning process and the whole of life costs of the project have been considered. Local governments are required to have asset registers and asset management plans in place for all asset classes held.
Any further enquiries on this matter should be directed to:
Senior Project Officer
P: 07 3452 6719
Department of Infrastructure, Local Government and Planning