SWANSEA Council has lent millions of pounds it has borrowed for new schools and the indoor arena to other authorities.
These “inter-authority” loan arrangements have been going on for years, and are regulated by legislation and codes of practice.
The short-term loans allow the lender – in this case, Swansea Council – the chance to earn some interest on the borrowed money before it is actually spent on projects.
And receiving councils, in turn, get a better rate of interest than they would if they applied to banks for a short-term loan.
According to a Swansea Council treasury report, the authority has lent £16 million to Thurrock Borough Council, £5 million to Telford and Wrekin Council, £5 million to Wakefield Council and £4 million to North Lincolnshire Council, among others.
A council spokesman said: “The way the system operates is that when a local authority wants to borrow money from another local authority over a short period of time, it will contact an authorised broker in the London money markets.
“The broker will match the borrowing request with a potential local authority lender and an agreement is reached between the two organisations.
“These ‘inter-authority’ loan arrangements have been going on for many years and all councils in England and Wales will use them as a cost-effective way of managing their finances and daily cash flows.”
He added: “As a council we can also enter into short-term borrowing from other local councils, although that’s not a facility we are making any material use of at the moment.”
The council has been building up a war chest in recent months in order to finance the bulk of the £130 million Swansea Central phase one scheme – whose key element is the arena – and also new school projects.
Nine loans of £10 million each have been agreed with the Public Works Loan Board – the council’s go-to lender – since April last year. The average loan length is just under 35 years, and the average interest rate is 2.35%.
The treasury report said the council’s total external debt at the end of 2018-19 was £493 million – including the housing revenue account – with an annual interest payment required of £34 million.
Carmarthenshire Council’s external debt, in comparison, was £412 million at the end of 2018-19.
Speaking last week, council leader Rob Stewart said the authority had paid back more than £100 million of historic borrowing in the last seven years.
The council has also changed its debt profile, reducing the amount it has to pay back in the short-term, although this is offset by increased payments further down the line.
Cllr Stewart said the measures taken would mean no impact on council services from any new borrowing.
The Welsh Government will finance more than half the costs of the new schools.
And £22 million of central Government money will help fund the Swansea Central phase one redevelopment, which includes new car parks, a park, and a commercial and residential scheme as well as the showpiece arena.
This £22 million will come via the city deal for the Swansea Bay City Region.
The four councils involved in the city deal are hoping this money will start flowing soon.
In July, it was announced at a media event in Swansea attended by ministers and council leaders that the first £18 million chunk of city deal money would soon be on its way.
Asked what has happened to it, a Welsh Government spokesman said: “We remain committed to the Swansea Bay City Deal and the transformational opportunity it offers to deliver genuine economic growth and change for the communities of South West Wales.
“We are working very closely with the regional partners to develop a programme of city deal projects and we will be issuing terms and conditions to the region shortly.”