South Australia’s Local Government Finance Authority (LGFA) has defied the current uncertainty in global financial markets, delivering a profit of $5.2 million – its second highest since being established in 1984.
Its profit, before income tax equivalents, is
16 per cent up on 2006/07. This flies in the face of recent media criticism of a scattering of Australian councils that, like various other private, public and not for profit organisations, have had some of their investments caught up in the current crisis.
LGFA describes itself as “a unique financial institution in Australia, investing and borrowing for South Australian councils through a single agency”.
Outstanding loan funds for the Authority totalled $447.8 million on 30 June 2008 and a record peak of investments was set at just under $496 million in September 2007.
LGFA states that it has no direct exposure to the US subprime credit crisis or to the collapse of Lehman Brothers bank.
LGFA Chairman, Paul Cohen, who is a former First Vice President with Bank One NA and is appointed to the board by the Local Government Association of South Australia, said that most importantly for ratepayers, the increased LGFA profit was achieved by better interest rate management within the balance sheet and not from increased margins.
“Indeed our operating margins were in fact slightly lower over the year – which has given South Australian councils access to cheaper funds,” Paul Cohen said. “As a result, a record $1.74 million will be paid back to councils as bonuses.”
He said the turmoil in financial markets may not be over but LGFA was placed well to continue to deliver the cheapest rates for council borrowings.
LGFA CEO, Paul Slater, said that given the size of the Local Government sector in South Australia the result was particularly pleasing.
“We’re not a big player so we have to be smarter at doing business,” Paul Slater said. “South Australian Local Government has consistently backed smart solutions for its back office functions.”
He said that the support of the South Australian Government, on commercial terms, had been important throughout the life of LGFA.
The LGFA concept had been put forward by the Local Government Association and was supported by the Government through an Act of the South Australian Parliament. “That Act provides for a board of which five members are appointed by Local Government and two by the State Government,” he said. “We act independently of the State Government but within requirements of the Act and guidelines of the South Australian Treasurer.”
Paul Slater said this year’s result brought the amount paid to Councils in bonuses since 1984 to $21.2 million, with ratepayers receiving the benefits in local services.
