We considered three potential funding options and we prefer: Option 1 - to join the LGFA as a guaranteeing member.
We are proposing this option because it provides:
- stronger financial resilience
- financial benefits of lower finance costs
Stronger Financial Resilience
Building financial resilience is a key element of our Financial Strategy. There are three key parts to financial resilience: insurance, liquid assets and debt capacity.
When the unplanned happens and we need to respond quickly having debt capacity addresses the most immediate need, realising liquid assets may not be the best option and may take longer and certainly insurance pay-outs will take much longer. By joining the LGFA we will have access to up to $130 million of debt based on revenue levels in year one of the Long-term Plan 2021-31.
Financial Benefits of Lower Finance Costs
The LGFA has offered more finance at more flexible conditions and at lower costs than banks since it started a decade ago. They hold 80% of local government debt and have nearly 90% of local government as participants. We can borrow quickly, with higher limits and longer terms for less cost. Borrowing from the LGFA is about 0.8% cheaper than bank funding meaning we expect to save around $1.5 million over the 10 years of the LTP.
The LGFA will cost us $13,000 each year, whether we use the funds or not. If we do borrow then LGFA finance have a proven track record of being the lowest as shown in their Annual Reports.