Ruapehu adopts debt policy

Ruapehu Bulletin, Volume 14, Issue 677, 11 March 1997, Page 3

Ruapehu adopts debt policy

Aborrowing man agement policy forthe Ruapehu District Council was adopted by the council at their last meeting, which limits the amount the council can borrow, the ratio of debt to operating revenue, the liabilities to assets ratia and controls the types of loans it can take out. The policy, labelled the Interim Borrowing Man- .

agement Policy, is in response to the Local Governmerit Amendment (No 3) Act 1996. which requires all countils to have such a policy inplaceby July 1998. In his report to the council, finance manager Eric Lei told councillors that the council, like anyone involved in financial markets, is exposed to financial markets risk and such a policy „ can ensure consistent man-

agement of that risk. He said the council must ensure that "activities which may be construed as speculative in nature do not occur". "We need to show our lenders that we are being responsible, that we are being prudent and limiting our debt," he said, adding "there is a bit of nervousness in the market (towards the Ruapehu District) after the

eruptions". "We're saying 'yes, sure there is a risk, but you've got to put it in perspective' ." Under the policy, the council will limit its debt servicing cost to 1 5 per cent of operating revenue. Currently it is forecast to be at 11.87 per cent for the 1996/ 97 year and was at 7.35 per cent in the previous year. A ratio of liabilities to assets would be limited to

1 2 per cent, with the ratio at June 1996 at 7.99 per cent. The mix of floating and fixed interest rate debt would be limited to a maximum of 90 per cent fixed rate, and 40 per cent floating rate. Loan maturity dates will be spread to minimise the council' s interest risk exposure. No more tlian 40 per cent of debt may mature within the following time

periods: within 12 months; between one and two years; between two and fi ve years; five years and over. A number of factors will be considered when setting a total debt level, including: the nature of the rating base; economic indicators

in the district; the "integrity and comprehensiveness of the council' s budget forecasting and monitoring systems"; medium and long term budgetary goals; projections for future indebtedness; comparison with other districts.