3. GovernancePrinciplesandCouncilPlanAlignment
3.1. GovernancePrinciples
ACouncilmust,intheperformanceofitsrole,giveeffecttotheoverarchinggovernance principles (Local Government Act 2020 (Act) s9).In accordancewiththeAct, thisPolicy aligns with the following governance principle/s:
Principle (g) the ongoing financial viability of the Council is to be ensured;
Principle (i) the transparency of Council decisions, actions and information is to be ensured.
3.2. CouncilPlanAlignment
Strategic Outcome 4: Council Performance and Leadership – A forward-thinking and responsive councilthat values community input, committed to optimising services, ensuring robust governance and making sustainabledecisions.
4. Policy
4.1. Generalprinciples
4.1.1. As a guiding principle, Council will not undertake to provide guarantees for loans or other borrowings taken out by community or sporting groups within the municipality of Frankston City Council unless there are demonstrated exceptional reasons and benefitstothebroaderFrankstoncommunityindoingso.Inallcircumstances,Council willonlyconsiderprovisionofaguaranteewhereCouncilhasandwillretainownership and / or control of the asset subject to the arrangement.
4.1.2. The offering of loan guarantees to community and sporting groups will only be considered as a last resort, once all other funding options have been fully exhausted, and compliance with the requirements of the policy have been met. Other funding options may include:
The provision of assistance from Council staff in the preparation of funding applications Government grants
Sponsorship
Fundraising
4.1.3. The community or sporting group will be responsible for interest and principal repayments.
4.1.4. Consideration must be given to Council’s commitment to responsible gambling. In principle, loan guarantees will not be provided to support the establishment or enhancement of gaming facilities.
4.1.5. Where an asset is to be constructed on Council owned or controlled land, Council Officers must oversee the construction to ensure adherence to all relevant standards and policies.
4.1.6. The loan guarantee is to be included in Council’s annual financial statements as a contingent liability. In the event of a default, Council would be required to report the loan as an expenditure item and as a liability, and this would increase Council’s debt level.
4.1.7. Loanguaranteeapplications(applications)canonlybeapprovedbyCouncilresolution.
4.1.8. Councilmay seek to be listed as a “secured creditor” against the Applicant to assist in the mitigation of Council’s risk exposure.
4.1.9. Councilreserves the right to take security over the assets of the Community group
4.1.10. Councilexpectsthattheloanprocedureswillshowthatthelenderwillexhaustalllegal rights against the borrower before calling on the Council guarantee.
4.1.11. All costs in relation to the guarantee areto be paidby the applicant.
4.2. Criteria
4.2.1. Loan guaranteeswillonlybeconsideredwhen allthefollowingcriteriahavebeenmet:
i. Where is it demonstrated that the project will provide essential services or a clear benefit to the wider community, Council’s Counciland Wellbeing Plan or other strategic planning documents endorsed by Council.
ii. Applications will only be considered by groups who reside in the Frankston CouncilmunicipalityorprovideasignificantbenefittotheFrankstonCityCouncil community
iii. Borrowings areonlyto be used for the construction and/or acquisition of capital assets on Council owned or controlled land that will be vested in and ultimately controlled by Council.
iv. Theapplicantisanot-for-profitorganisationandhasalegalstatus(incorporated or a company) and is the current lessee of the land.
v. The applicant has no outstanding debts to Council.
vi. The loanguaranteeshallnotexceedfiftypercentofthe finalvalueoftheasset.
vii. The useful life of the asset exceeds the life of the loan guarantee.
viii. The term of the loan shall not exceed the term of the existing lease agreement. The lease agreement refers to the agreementbetween Councilas landlord and the community organisation.
ix. The loan must be from a bank, building society or credit union.
x. The loan must not include a redraw facility.
xi. The loan must not be an interest only loan.
xii. Guaranteeswillnotbeprovidedwhereworkshavealreadycommenced,unless the Council resolves that extenuating circumstances exist.
4.3. Maximumexposure
4.3.1. The total loan guarantee commitments will be considered upon each new application received to ensure the total loan guarantee commitments and Council’s external borrowings do not exceed the following Victorian Auditor General Office sustainability guidelines and Borrowing Prudential indicator thresholds:
Liquidity: VAGO > 1.5
Indebtedness: VAGO < 40%
Debt management: VAGO < 25% Debt commitment: VAGO < 5%
4.3.2. Council’s maximum exposure to loan guarantee commitments shall be capped at an amount no greater than one percent of Council’s annual rate revenue. Council’s loan guarantee commitment is measured based on the outstanding balance of loans guaranteed by Council.
4.4. Guaranteeterm
4.4.1. The Guarantee term willonly be considered within the following benchmark terms:
Up to 49,999 5 years
50,000 – 99,999 10 years
100,000 – 499,999 15 years
500,000 and above 20 years
4.5.
Documentation
4.5.1. All requestsfor Councilloanguaranteesupport or joint fundingarrangementsmustbe completed on the Loan Guarantee Application Form in consultation with Council officers. Any other requests will not be considered.
4.5.2. The Council reserves the right to request and receive any information that may be required in its consideration of the guarantee request.
4.5.3. For a loan guarantee application for greater than $20,000 the Organisation must provide audited Financial Statements for the past four years, a Business Plan and Projected Cash Flow Statement for the next five years.
4.5.4. For a loan guarantee application for less than $20,000 the Organisation must provide Financial Statements for the past three years as presented at the Organisation’s Annual General Meeting, aBusinessPlanandProjected Cash Flow Statement for the next five years.
4.6. Reviewpanel
4.6.1. Each application will be assigned to the Director Corporate and Commercial Services (the “Responsible Director”). The Responsible Director is charged with the duty of forming the review panel.
4.6.2. TheReviewPanelshallcompriseofaminimumofatleastthreeCouncilofficersbeing:
Responsible Director
Manager Financial and Integrated Planning
Director or a Manager (from the Directorate from which the application relates to).
4.6.3. The assessment of an application will require a considerable amount of professional judgment by officers. Should the relevant officers believe they do not have sufficient skillsandexperiencetoformanopinion,theyshouldseekthirdpartyexpertassistance. Before any third party assistance is sought, approval must be first received from the applicant in writing.
4.7. Conditionsofapplicationandoffer
4.7.1. Should Council resolve to act as Guarantor of the Loan, the community organisation willbe required to:
i. Notify Councilof any legal action they enter orare joined to, and any intention to take out further borrowings.
ii. Support any necessary amendments to the loan guarantee documentation to the satisfaction of Council. Councilreserves the right to review and amend the loan guarantee documentation in order to minimise exposure to “generic” loan guarantee documents issued by lending institutions.
iii. Enter into an agreement with Council that should the loan guarantee be called upon by the lending institution, that the community group relinquishes all usage right/access to the asset. It should be noted that this agreement will supersede any previous ground allocations made.
iv. Provide Council with bi-annual loan statements that demonstrate the status of loan repayments.
v. Immediately notify Council in the event of any default in loan repayments.
vi. Provide Council with minutes of the annual general meeting plus annual audited financial statements, and any other information the Councilmay reasonably require to assure itself of the status of the loan
5. .RolesandResponsibilities
Role Responsibility
Councillors
Director Corporate and Commercial Services
Directors / Managers
Manager Financial and Integrated Planning
Responsible for approving or denying applications in- line with this policy
Responsible for receiving applications, forming the review panel and assessing applications.
Responsible for being a Mmember of the review panel, whereif the application relates to their directorate
Responsible for being a Mmember of the Review Panel and assessing applicationsin-line with this policy.
6. Policynon-compliance
Non-compliance with this Policy has the potential to negatively impact on the reputation of Council.
In the event that the organisation does not meet its financial obligations, and the Council is called to account for the loan guarantee, then the tenancy of the organisation of the Council’s property willbe reviewed.
7. Definitions
Term Definition
Community group Is a not for profit organisation that is run by volunteers to provide benefits to the community. This includes clubs and not for profit community groups that use or predominantly use the premises to provide cultural, sporting and recreational activities and services to theirmembers whopay subscriptions,registration fees orusage fees and charges and so have some capacity to generate revenue from use of the premises or other activities.
ForthepurposeofthisPolicy,communitygroupalsoincludesnot-forprofit community based health and wellbeing organisations. They have the capacity and opportunity to derive income from the use of the premises and the service they provide
Not for profit Is an organisation that is not operating for the financial profit or personal gain of its members or associates. Not for profits can raise money but money raised is spent to benefit the public or further the cause of its intended purpose.
Incorporated association
Is a process whereby a not-for- profit community group or club becomes its own legal entity. This means that members of the group have legal protection against personal liability for the organisation. Whenagroupbecomesincorporateditbecomesalegalperson–that is a legal entitythat stays the same even ifitsmembers change. This protects the individual members of the association from legal liabilities. The group can also enter into contracts, sign a lease or acquire and deal with property. Council will only enter into a loan guarantee with a community group that is incorporated.
Loan guarantee is a contractual agreement with a financial institution whereby the guarantorwillservicetheloaniepayinterestandprincipleintheevent that the person/group responsible for the loan is not able to service the loan.
8.1. Legislation
Local Government Act 2020
Corporations Act 2001
8.2. Documentsandresources
Local Government Financial and Reporting Regulations
9. ImplementationofthePolicy
This Policy will be implemented immediately following the Council resolution to adopt this policy.
