Horsham Rural City Council’s four-year plan to increase debt ratio questioned during Monday’s meeting

HORSHAM Rural City Council’s four-year plan to increase its debts compared with rates income was questioned during Monday’s meeting.

Cr David Grimble asked for clarification on the growing ratio of borrowings to earnings during a motion to accept Horsham council’s annual report and financial report.

Horsham’s debt level will reach the Victorian auditor’s medium risk level by 2020, spent on capital works.

The issue comes as the Victorian Parliament plans to have another round of hearings on its ‘Fair Go‘ rate cap policy.

Labor made a promise during the 2014 election campaign to cap council rate rises in line with inflation, later modified to a cap based on inflation and other factors.

Horsham council was one of 21 municipal governments that applied to the Emergency Services Commission for a rates rise above the 2.5 per cent limit, raising rates by 3.5 per cent.

Cr Grimble asked corporate services director Graeme Harrison about the growing ratio of debt to council’s own revenue.

He pointed out that the ratio of debt repayment to revenue would not increase by a material amount in the same time period that debt was growing.

“The other thing that I will ask Mr Harrison for comment on is how our current rating strategy across the whole local government sector is unsustainable,” Cr Grimble said.

“What we need is more financial assistance, particularly form the state government but also the federal government.” 

Horsham council plans to accumulate about 50 per cent more unrestricted cash compared with liabilities over multiple years in order to meet loan repayments due in 2020.

The council’s loans and borrowings compared to rates revenue will increase from a ratio of 17 per cent in 2015, to 47 per cent in 2020, with increased borrowings to go towards capital works.

Mr Harrison said the debt to rates revenue was set to increase but debt repayments would depend on interest rates and the terms of the loans.

He said preferred bands for council debt ratios were guidelines and not absolute limits.

“The indebtedness ratio has a preferred band of 10 to 40 per cent, but the Victorian Auditor General says anything below 40 per cent is a low risk. Over 60 per cent is a high risk,” he said.