Debt increased to fund capital works

BIG SPENDERS: Bendigo's big-spending 2016/17 budget will plunge it into $50 million worth of debt.
BIG SPENDERS: Bendigo's big-spending 2016/17 budget will plunge it into $50 million worth of debt.

Aggressive borrowing to fund infrastructure projects will likely plunge the City of Greater Bendigo into $50 million-worth of debt by mid 2017.

The city’s CEO, Criag Niemann, will shortly tender for a $17m loan, which will push Bendigo into a ‘medium’ repayment risk category, as classified by the Victorian Auditor General’s office.

Just two other regional councils across Victoria, Wodonga (51.2 per cent) and Wangaratta (66.43 per cent), have higher levels of indebtedness.

Indebtedness is the amount of debt relative to the amount of revenue generated by councils.

The City of Greater Bendigo will pay $1.8m in interest in 2016/17, rising to $2.3 over the next two financial years, according to its 2016/17 budget. 

The $17m loan is more than triple the city’s borrowings from the previous year.

Partner at accounting firm AFS & Associates, Graeme Stewart, said while he was reluctant to comment directly on council’s business, borrowing in a low-interest rate environment for capital works seemed like a good idea.

“Loans are the lowest they’ve been for 30-40 years,” he said. 

The Victorian Auditor General states medium risk created “some concern over the ability to repay debt from own-source revenue”.

City of Greater Bendigo finance manager Travis Harling said the level of debt was not a concern, but rate capping introduced in 2015 “makes it difficult, especially for a growing regional city”.

“This is the last of the larger loans,” said Mr Harling, who suggested the rate capping has not directly influenced council’s borrowing. 

“We’re not borrowing more because rates are lower. You can’t borrow for operations, just for capital projects,” he said.

The draft 2017/18 budget, expected to be released on Wednesday evening, will detail projected borrowings of around $3m, he said.

The city’s capital works program for 2016/17, part of its biggest-spending budget ever, included almost $100m for infrastructure projects like Bendigo stadium, the aquatics centre and council’s contribution to the Bendigo airport development.

Local Government Minister Natalie Hutchins has set the rate rise cap for 2017/18 at two per cent.