Star date: 7th November 2011

SALFORD COUNCIL BORROWING MORE THAN DOUBLES IN LAST THREE YEARS

Salford City Council is building up a mountain of debt which could see the city in real trouble should interest rates rise. The Council has been borrowing money at low rates to support projects like the Peel Holdings joint venture Salford City Stadium, while buying up properties on The Crescent for its venture with English Cities Fund.

Meanwhile, the Council's financial reserve back-up, already £5million below what is deemed `desirable', could go below its minimum before the year is out. Could Salford go Greek?

See a Mount Olympus of debt here…

Salford City Council's use of `unsupported borrowing' (ie loans taken out by the Council that it has to pay back from its own budget) has more than doubled over the last three years – from £34.67million in 2008/9, to £58.75million this year, to a forecast of £77.5million from next March.

Unsupported borrowing has been used to finance things like the £22million loan to the Council's Salford City Stadium joint venture with Peel Holdings, and a loan (no-one will tell us how much) to the weird private consortium of Legal and General, Muse Developments and the Homes and Communities Agency which is currently `re-developing' Chapel Street and The Crescent.

A report by Salford Council's finance team argues that the debt is manageable as it is "mitigated by the impact the recession has had on interest rates and consequently borrowing costs". However the report adds that "the key risk…is in interest rates rising. Each additional 1% would cost an extra £500k approximately in interest charges."

There's a few things to bear in mind here. Firstly, an earlier Salford Council finance report forecast that interest rates would rise to 6% towards 2012. And, secondly, the current 1% interest rates only relates to unsupported borrowing for `general purposes' of £30.45million out of almost £59million borrowed this year, and for only £29.9million out of £77.5million forecast borrowing for next year.

Nowhere does the report state the interest rates for the other near £30million this year and over £40million next year.

Meanwhile, Salford Council's total external debt as of September this year was £579million, which another Council finance report states is well within limits. However the same report adds that to avoid risk, Salford Council should have a "minimum level of reserves of £8.750m to be held, whilst a desirable level of reserves would be £15.5m".

The Council's forecast reserve level by March is £10.357million, but the report adds that "There may be a call on reserves of up to £1.918m if sufficient contingency savings to make good any shortfall in achieving the high risk savings are not identified". If not achieved, this would take the Council's reserves down to £8.4million, and below the minimum level of reserves needed.

What is more, to get out of debt the Council can't sell off property and land, like it did around the year 2000 because values have dropped through the floor. Or, as the report states, "the impact of the recession has meant that capital receipts have dried up considerably as land values have reduced, making it unviable to place many of the more valuable pieces of land on the market for disposal".

Whereas previously the Council would flog stuff off and re-invest the money in new buildings and roads, now it's using `unsupported borrowing' which has to be paid for out of its budgets that  – maybe we're dreamers – could be used for keeping public services like adult social care maintained at current levels. 

While Salford Council is currently gung ho about its £22million loan to its joint Peel Holdings Salford City Stadium venture, only time will tell whether it's a complete folly or not.

It is complicated, and most of it is all Greek to us (pun intended) but, reading between the lines, Salford Council is playing a very risky financial game indeed.

• The Salford Star has asked under Freedom of Information Act for details of loans that Salford Council has borrowed or given to other local authorities but this has been refused once, and on appeal, using the `commercial sensitivity clause'.

Martin Vickers, Salford Council Strategic Director Customer and Support Services explained "It is of paramount importance that the council can borrow money at the lowest rates of interest possible. It is my view that the release of any details of the money lent to and received from other local authorities – both total annual figures as well as details of individual loans – could be detrimental to the council's commercial interests by disadvantaging the council in future lending/borrowing negotiations."

* For more info on the Salford City Stadium loan and an interview about it with Salford Council Leader, John Merry, click here

* Graphic by Jamie Reid