Logan City Council’s “bad debt deal” means it could get stuck paying five times the amount of interest on its record-high loans than it was four years ago.
It was revealed in a special budget meeting council would borrow a staggering $195 million over the next year, and potentially $350 million over the next four years, to accommodate the city’s burgeoning population growth.
Cr Jacob Heremaia said, because of council policy, the loan would likely be locked in at a 5 per cent interest rate, paid off over 20 years.
He said while the loans were essential to pay for roads and water, council would get a “bad debt deal” and should reform its borrowing procedure to get more bang for buck.
Council is required to borrow from the state government’s finance body, the Queensland Treasury Corporation.
According to Cr Heremaia, council’s official debt policy means it is expected to enter long-term, fixed-rate loans and he believes this should change.
He said that in the current market, high interest rates caused council to spend more money on repayments and “less money on our community”.
“Four years ago we took that approach, and we borrowed approximately $90 million at a 1 per cent interest rate,” Cr Heremaia said.
“That was a great deal, because we locked-in a low-interest rate.
“Over the past four years, interest rates have changed, and the market has adjusted.
“That means taking that same approach of long-term, fixed-rate loans won’t deliver the same outcomes as it did four years ago.”
He said council needed to “reform and diversify” its debt policy to determine the “smartest way to borrow that $190 million”.
“Should we borrow some on five-year loans, 10-year loans, 20-year loans,” he said.
“Get down and do some homework and figure out how we can make sure we reduce repayments and put more money into the community instead of paying our bankers.”
He said he wanted council to spend more money on the community and less on loan repayments.
“There’s still some hope – we can always refinance this $190 million – but I believe that we need to reform the debt policy,” he said.
“It’s urgent, as this term we’re still scheduled to borrow an additional $350 million, so the quicker we do it, the better.
“I want to see money be put back into parks, back into roads, back into those potholes.”
Mayor Jon Raven agreed the debt was needed to invest in the city’s future.
“As we continue to grow this number will rise because people want us to deliver infrastructure, they do not want us to make excuses,” Cr Raven said at the council meeting.
“The good news is, we only borrow the money when we need it, so if we move quickly on the reforms, you’d (Cr Heremaia) like to implement, you may be able to save those interest rates from ever being incurred.”
He told MyCity Logan he was looking forward to Cr Heremaia’s work on the policy reform.
“There’s an amazing opportunity for an enthusiastic councillor who really cares about this issue to fix it once and for all,” he said.
