Salford is sitting on a debt timebomb, where even a 1% rise in interest rates would cost the city millions of pounds – which would be paid back from its `revenue' account, or money that should be spent on public services.
Salford Council has borrowed huge amounts of money that's been spent on prestige `capital' infrastructure projects like bridges, fountains, `aspirational walkways', MediaCityUK, Chapel Street and Salford City Stadium.
Indeed, according a report by the Council's Chief Financial Officer, Neil Thornton, "The City Council has made clear policy choices to continue to support affordable investment in infrastructure throughout the significant downturn experienced over recent years".
Currently, Thornton explains, the Council has been "able to take advantage of low interest rates but will need to be mindful of upwards movements of interest in future…"
However, he adds that "as interest rates increase, so will the charge to the revenue budget. To illustrate, had the interest on net debt been an average of 1% higher in 2012/13, the net interest charge would have been £4.169m greater." Interest rates are currently forecast to rise to at least 2% by 2017.
Salford Council currently has the highest amount of debt than any other council in Greater Manchester, with `total debt' standing at £516,097,000. This is five times greater than Bolton Council (£97.761m) and Trafford Council (£103.126m, over three times greater than Oldham Council (£150.663m) and Rochdale Council(£174.414m) and more than twice as great as Bury Council (£207.364m).*
Big spending Manchester Council comes closest at £503.065m, followed by Wigan Council (£470.824m) and Stockport Council (£336.842m).
Salford City Council's `net debt' (`total borrowing less short and long term investments, cash and cash equivalents') of £416,885,000 is also the highest of any council in Greater Manchester.
Meanwhile, figures that probably mean more to accountants than average residents, appear frightening…
Salford Council's `net assets' (total assets, less total liabilities), which give the organisation's value or true worth, are just £16.045million, the lowest in Greater Manchester - over a hundred times smaller than Manchester Council, and over twenty times smaller than Bolton, Bury and Wigan councils.
While Salford Council's assets are currently worth £1,117,493,000, its debt is 46% of this figure, again the highest of all Greater Manchester councils. The figure for Manchester Council, for instance, is 16%, while the average for the county is 26%.
Salford Council's `net assets' as a percentage of `total assets' is just 1%, compared to a Greater Manchester average of 32%.
Salford Council's Chief Finance Officer states, with no irony, that "It can be seen…that Salford has a relatively high ratio of debt to assets" and that this "might be expected given the level of regeneration and other capital investment across the city over the past few years".
He explains that a proportion of the borrowing has been "match funding capital investment in regeneration areas on works that are not directly related to City Council assets" - which the average person might interpret as Salford Council using public debt to back projects that the public won't own. To which the average person might ask `Why are they doing it then?'
This financial year, Salford Council will be spending a further £118.972million on `capital’ projects, and will be borrowing a greater proportion of it than any other Greater Manchester council, almost £63million. Any money the Council makes from flogging off its buildings (capital receipts) will go towards paying off the debts.
The picture emerging is that Salford Council is hocked up to its eyeballs to pay for "clear policy choices" to plough finance into prestige infrastructure projects "throughout the significant downturn experienced over recent years".
The finance report says that there is only a `Medium Risk' of anything going wrong with this strategy and the Council "only undertakes borrowing to support its capital investment strategies that it considers to be prudent, affordable and sustainable".
However, it adds that "The main financial risk is of movements in interest rates increasing the burden on the council's revenue budget".
In other words, if the interest rates begin to go up the city is goosed. But we'll have some nice bridges, fountains, piazzas and a stadium to ponder…
* Figures are based on all councils' latest accounts - only Salford and Oldham have 2012-13 accounts completed. All others are based on 2011-12.