Debt free Cherwell District Council will be asked to approve maximum loan limits on Monday to fund major building projects, but will not borrow to balance everyday costs its finance leader has said.
Speaking to the Banbury Guardian on Tuesday, Councillor Ken Atak, Cherwell’s lead member for finance, confirmed a special council meeting at Bodicote House on Monday will consider an update to the council’s Treasury Strategy 2014-15 in which Cherwell’s director of resources and interim head of finance recommends a borrowing limit of £20 million for the year 2014-15 and £45 million for each of the years 2015-2018.
Mr Atak said the loans will finance the self build housing scheme at Graven Hill near Bicester, where the council is purchasing an MOD site and plans to build 1,900 homes in partnership with residents.
The loans will also be used to fund other self build schemes in Banbury at properties such as Calthorpe House, Lincoln House and Orchard Lodge.
The report states: “The council is currently debt free however the capital programme demonstrates that capital receipts are diminishing. Future projects may require the need to borrow and for the council to enter into long term debt arrangements.”
The borrowing limits are determined under the Local Government Act and borrowing cannot go beyond them.
The council currently expects a deficit of £9.237 million in 2014-15 and £26.367 million in 2015-16 to pay for these Capital programmes and this deficit will be filled by the loans.
The report also suggests the council does not rule out borrowing beyond these limits. It reads: “The Head of Finance and Procurement will monitor this situation and if there is a requirement to borrow outside the operational and authorised limits an updated version will be prepared for member approval.”
But Mr Atak said the council is borrowing to invest in the sites so it can ensure a strong financial return when the properties are sold, which will help it offset expected cuts in government grants in the future.
He said the council would never borrow to cover its day to day expenses despite expected further cuts in government grants over the next five years. He said: “We certainly wouldn’t do that, not on my watch. If you’re getting into borrowing to finance every deficit then your budget is clearly broken.
“We’re looking to wean ourselves off government grants and we’re being positive and looking to the future.”
The council’s Medium Term Financial Strategy states Cherwell is expected to face an overall £1.617 million funding gap in the year 2015-16, £3.413 million in 2016-17, £4.794 million in 2017-18 and £5.068 million in 2018-19 .
These deficits will be caused by annual reductions in the council’s overall government grant.