A loan for $1,522,500 million at around 5.29 per cent for the next five years will be taken out by Naracoorte Lucindale Council on June 15.
The borrowed funds will be used to help upgrade SA’s biggest saleyards, Naracoorte Regional Livestock Exchange (NRLE).
Turning 50 this year at its current site and considered a jewel in the council’s crown, the “user pays” facility is self-funded by the district’s biggest ratepayers, its primary producers.
The $1.928 million upgrade includes a $1,522,500 roof over the D Yard, as well as $406,000 for a cattle crush, pens and other improvements.
The council will also “lend” its own livestock exchange the $406,000 out of its term deposits, currently earning 1.3 per cent interest and charge its NRLE 5.29 per cent for the funds.
The 5.29 per cent was current at the time of council’s June 7 special meeting agenda.
The loan structures were recommended by CEO Trevor Smart and manager finance and corporate Alex Edmonds, prompting debate between councillors during at least two public meetings.
At the council’s Lucindale meeting on April 26, Cr Peter Ireland questioned why the council needed to borrow so much money at a much higher rate than it was earning on fixed deposits.
At that meeting, Ms Edmonds had reported the council was earning 0.98 per cent on $2 million; 4.3 per cent on another $2 million; 1.3 per cent on a further $2 million and 1.3 per cent on $500,000.
“At the end of the day our recommendation is that we look to the Local Government Finance Authority (LGFA) for the roof and use internal funds as an internal loan to the NRLE based on comparable interest rates from the LGFA,” Ms Edmonds said.
She recommended a loan over 15 years for the D Yards roof and the council itself lend the NRLE $406,000 from its own cash reserves “applying the same interest rate charged by the LGFA at the time of drawdown”.
Cr Damien Ross spoke for six minutes, suggesting the council might not be able to pay off the loan early if it was taken out over 15 years.
“We’re probably getting close to the peak of where rates might be soon,” he said.
“So going forward in the next five, 10, 15 years, you’ll hope there’s going to be a bit of softening of rates.”
He urged the loan be taken out for five years with the ability to review it.
Cr Peter Ireland highlighted council’s cash deposits including $2.5 million at 1.3 per cent.
He indicated the $1,522,500 of borrowings did not include a calculation for the compounding of interest that council would have to pay, regardless of the interest rate.
Ms Edmonds confirmed the council would be paying interest as well as principal at six monthly instalments “just like any other loan.”.
Cr Ireland then queried why the council had funds invested at 1.3 per cent and was lending $406,000 to the NRLE at 5 per cent.
“That’s a very good wicket that I think the council is on for investing their monies,” Cr Ireland said.
“But are we robbing Peter to pay Paul? I just wonder whether we should be finding some middle ground with the interest calculation that we’re using for the Naracoorte Regional Livestock Exchange?
“Because, otherwise it could be costing the exchange an extra $20,000 or $30,000 a year, to the benefit of council.
“I just wonder whether we revisit that?”
Mayor Patrick Ross asked if Ms Edmonds could revisit that and she said she could.
Cr Cameron Grundy – who also chairs the livestock exchange board – queried the interest rate predictions of Cr Damien Ross and suggested 15 years at a low interest rate gave council more options.
“He (Cr Ross) is obviously an expert in his field and all that sort of thing…but historically, we are enjoying some of the lowest interest rates in history,” Cr Grundy said.
“And I do think that there’s a case for perhaps locking it ($1.522 million) in for 15 years if that is one of our options.”
Cr Darren Turner agreed and said that the average of interest rates over the long term were probably around 7 to 7.5 per cent.
“The value of locking it in is you de-risk it,” said Cr Turner, who added he liked the way the loans were structured.
Before the meeting Cr Tom Dennis said he had a conflict of interest and left the room. No other councillors commented.
The motion for the council to finance the roof through a 15-year loan from the LGFA and $406,000 from cash reserves – applying the same interest rate as the LGFA, was moved by Cr Grundy, seconded by Cr Ross and carried.
Cr Ireland said he was against the motion.
At the council’s June 7 special meeting Ms Edmonds reflected on the Lucindale meeting in her report which detailed interest rates and costs over three years, five years and 15 years.
Crs Dennis, Ireland, Crash Downward and Trevor Rayner were absent.
Of the six councillors there, Crs Grundy, Turner, Abigail Goodman, Damien Ross and Craig McGuire contributed to a 40-minute debate. Cr Monique Crossling did not comment.
Eventually a motion was passed 5-1 enabling the council to borrow a maximum of $1,522,500 from the LGFA for the saleyards’ D Yards Roof project.
There was no official time frame for the loan mentioned in the motion, but councillors informally agreed with Ms Edmonds for it to be locked in for five years and reviewed.
Cr Grundy who argued for a low interest rate to be locked in over 15 years voted against the motion.
This article appeared in the Naracoorte Community News.
