Northamptonshire County Council has borrowed £110m from the Public Works Loan Board to replace short-term borrowing.
The council took six loans during August at rates between 1.12% and 1.68% with maturity periods of between five and 50 years.
The council said the move would remove the council’s exposure to risk in the by taking out long dated borrowing at cheap rates.
A report to councillors said this week: “A total of £110m was taken up in mid-August, the majority of which was for periods in excess of 40 years at an average rate of 1.68%.
This is a historically low rate of interest and will be of a lasting benefit to the two unitary authorities [which is set to replace the county and districts].”
However, the price for the protection against fluctuations in the rate of short term borrowing is an increase in the council’s forecast cost of borrowing, the report said.
According to the report: “This is because the interest rates are slightly higher than the previously assumed cost of (short term) borrowing and also it is in advance of the maturity dates of existing loans.
“There is an adverse movement of £150k compared to the previous [monthly budget monitoring] report, but overall there is still an expected underspend of £65k for the year.”
Last month, David Blake, strategic director at treasury adviser Arlingclose, warned councils to be cautious in their approach to taking out 50-year dated debt.
In a blog for Room151.co.uk, he said : “While 50-year loans can make sense in some circumstances, including debt rescheduling scenarios, most projects will include a provision to repay debt, favouring equal instalments of principal and annuity loan structures.
“Ultra-long maturity loans can prove incredibly costly to unwind and remove the flexibility to adjust debt levels or refinance at lower rates.”
The borrowing comes as the council revealed in its latest financial forecast that it is still facing an overspend of £5m against an approved budget of £417.7m.
The projection, set out in the monthly financial monitoring report, is an improvement of just £557k from the position reported in the first quarter of this year.
As with councils across the country, its biggest cost pressure is huge demand in children’s services which has worsened by £796k.
It has also seen a further £340k hole open up in technical, finance and insurance.
The council revealed it must find “external funding” of £2.1m to carry out the work that will deliver the savings.
Critical issues include an increase in the number of adoption and fostering cases.
Although the council has been able to book long-term placements, it has been unable to avoid the agency fees associated with it.
So, what has the council done and where does it go from here?
Trouble began last year when the council had to issue a notice halting spending and in August this year the council revealed a £34.9m budget gap for 2020/21 had opened up.
The report to councillors says: “The leadership team and cabinet continue to treat the delivery of 2019-20 budget with the utmost priority.
“Therefore, mitigating actions will be taken to address the forecast overspend position in order to return to an overall balanced budget. Options to close the gap are actively being formulated.”
The Northamptonshire team are focusing on the immediate battle to balance the books and are optimistic about the chances of success.
A council spokesman told www.Room151.co.uk: “The financial position has improved considerably but there is still a lot more work to do.”
