Treasury Management and Pies in the Sky

CoinsOn Monday I attended a meeting of the Babergh & Mid Suffolk District Councils’ Joint Audit and Standards Committee where the main item on the agenda was the Joint Treasury Management Strategy for 2015/2016. Having established the criteria for choosing counter parties at the last meeting I thought that this strategy paper would be a gentle formality. But as always when you think it’s all under control the land mines and elephant traps start appearing. Page 3 of the strategy paper advises that included in the future borrowing requirements is £25 million relating to delivery plan projects. Any use of this borrowing will be subject to a business case and will achieve a return on that investment and produce additional income to help towards the council’s medium term funding gap.
So much for fine words but further on page 33 indicates that borrowing costs as a percentage of General Fund (income) will rise to 32.74% in 2016/2017 and to 35.07% in 2017/18. When asked why we looked as though we were committing over a third of our income to debt servicing costs – we were told that projects has not yet been identified and that the inclusion of the costs were merely being prudential. Except that we were being asked to approve this situation and as any fule noes such a level of debt servicing can only mean a reduction in services or a culling of staff or both. We declined to approved the strategy without serious amendment and reservations.
I went to bed asking myself what sort of project would it be that would have a long initial period of no income. And then I woke with the answer – a very nice new headquarters could quite easily soak up £25 million with the borrowing being repaid from the proceeds of sale of the existing and consequently redundant buildings.
Not that the District has a happy history of business cases coming to fruition in the manner first proposed and we certainly do not have a good reputation for managing our real estate portfolio.
What’s my next step – let’s see if I can get an unequivocal statement that none of the £25 million is intended for a new headquarters.

Treasury Matters

CoinsLast Monday I achieved a small success.
It was the occasion of the Babergh and Mid Suffolk District Council’s Joint Audit & Standards Committee discussion on the Mid Year Report of Treasury Management 2014/2015.
Normally these meetings are a gentle breeze through the agenda merely noting what has happened and making the odd recommendation – all written and suggested by the officers.
Except that the recommendations included allowing deposits in banks and other organisations whose credit rating was BBB+. Additionally although recent regulatory changes approved by the European Parliament changed the eligibility of certain deposits (for compensation), public sector and financial organisations, remain ineligible for compensation. Anyone responsible for money management knows that in times of difficulty you chase security over yield – and I wasn’t going to let the investment profile move southwards.
Fortunately my view prevailed and the proposal to use BBB+ counterparties was withdrawn.
Which makes one ask, why it was suggested in the first place?