Details of Off balance-sheet borrowing which Jersey is committed to

1240/5(1931)

QUESTION TO BE ASKED OF THE PRESIDENT OF THE FINANCE AND ECONOMICS COMMITTEE ON TUESDAY, 22nd JULY 2003 BY SENATOR E.P. VIBERT

Question

1. Would the President inform membersofthetotalamountof off balance-sheetborrowing' , that is capital expenditure not funded by a Capital Vote or from Trading Fund Balances – either external funding or internal funding – to which Jersey is currently committed?
2. Would the Presidentsupply details of each loan givingmembers –

( i)  the purpose of the loan, the date it was taken out, the balance owing, the total amount of the loan and the

interest being charged?

( ii ) the source of the funds for each loan?

3. Would the President advise the Assembly what the Committee's policy ison off balancesheetborrowing'?
4. Would the President inform membersof the current amount held in the Strategic Reserve (the rainy day fund'), and the projected return this year?

Answer

1. The Statesof Jersey does not have anymaterial offbalance-sheetborrowing'. This is because all material loan or financing arrangements between the States of Jersey and third parties are disclosed in the Audited Accounts of the Treasurerof the States asat 31st December 2002 and I would direct members to note 20, page  xxxvi of  those  Accounts  which discloses finance  lease capital  commitments outstanding  as  31st December2002of £35.5 million.  Assuch, all of the States ofJersey's financing is on-balance-sheet'.

O  f this £35.5 million finance lease commitments identified in the Accounts: £1.7 million is funded from the

Capital  Fund, £1.1  million  will  be  funded  by  the  now  incorporated  Jersey  Telecom  Group  Limited, £25.3million is funded by the Harbours and Airport Committee and £7.4 million will be funded through General Funds through rentals charged to Committee cash limits.

I n addition to the above, there exists a small number of internal financing arrangements which were initially

funded from cash balances and which will be repaid through Committee cash limits. These arrangements amounted to £4 million (Jubilee Wharf, La Collette Bus Garage, Les Quennevais  Dance Studio) as at 31st December 2002.

F u rthermore, the Housing Development Fund advances sums for the development of social rented or first

time buyer property, which are repaid through the sale of these properties to first time buyers or to Housing Trusts, through rentals achieved from completed developments or through allocations to the Fund provided through the Capital Fund. The balance of properties that are awaiting transfer to Housing Trust or are in the administration of the Housing Committee amounted to £35,679,896 as at 31st December 2002.

W  hilst not amounting to borrowing, as disclosed in note 19 page xxxv of the Financial Report and Accounts

2002, the States have provided guarantees up to a maximum of £20.2 million as at 31st December 2002 to financial institutions in respect of the borrowings of Jersey New Waterworks Company Limited and up to a maximum of £5.5 million in respect of the borrowings of Jersey Arts Trust in connection with the renovation of the Opera House.

W  hilst also not amounting to borrowing the Housing and Finance and Economics Committees have agreed to

provide financial support to various Housing Trusts in respect of their bank loans entered into in connection with the Trusts' development of social rented housing. The Finance and Economics Committee issues letters of comfort' to the banks in respect of such loans. These letters of comfort do not constitute guarantees. As at 31st December 2002, letters of comfort, in respect of loans totalling £80.3 million were in issue.

2. As the questionasked, specifically excludesfinancingsfunded from the Capital Fund or Trading Funds, I have excludedall such arrangements from myanswer to this question,including the HousingDevelopment Fund.  I have also excluded finance arrangements entered into by departments for minor items such as photocopiers, etc..

M  aterial external' loan or lease financing funded other than through the Capital Fund, Trading Funds and that now assumed by Jersey Telecom Group Limited amounts to one lease and leaseback arrangement, approved by the States on 16th April 1996 to fund Morier House. The balance of the capital outstanding at

31st December 2002 and the original capital sum borrowed on that arrangement amounted to £7,360,738, interest charged to the Accounts for 2002 amounted to £636,467, and the interest rate applicable is 6 %. The arrangement is between the  States  and RBSI  and is  being  repaid through  rentals paid by departments occupying that building through relevant Cash Limits.

I n ternal Funding

T h e following internal financing arrangements currently exist – 1 . J u bilee Wharf

T h i s i s an arrangement, funded from internal cash balances to provide office accommodation for the

Housing Department. The original loan of £2.5million, which was drawn down in 2000 and bears interest at the Kleinwort Benson 1 month fixed plus one percent, will be repaid from the Housing Committee's Cash Limit over 20 years, replacing rentals that used to be paid to third parties.  This arrangement was agreed by the States (September 2000).

2 .  L a Collette Bus Garage

T h is is an arrangement, funded from internal cash balances, to provide a Bus Garage at La Collette. The

original loan of £2million, which was drawn down in 2002 bears interest at the Kleinwort Benson 1 month fixed plus one percent, is being repaid from the Bus Operator's rental payments (£180,000 pa initially) over 20 years. This arrangement was agreed by the States (P.61/2002).

3 .  L es Quennevais Dance Studio

T h is is an arrangement, funded from internal cash balances, to provide a Dance Studio at Les Quennevais

Sports Centre.  The original loan of £300,000, which was drawn down in 2001 and bears interest at 6%, is being repaid from extra income arising from the use of the Studio over 5 years. This arrangement was agreed by the Finance and Economics Committee (may also have been the States, if drawings were presented).

3. I refer the Senator to the stance oftheFinanceand Economics Committee asrecorded in the Resource Plan, 2002, and I quote from page13of that document:

T he Finance and Economics Committee recognises the possibility of funding projects outside the Capital Fund, through the use of private finance. This will normally, however, only be considered where a new funding stream, which meets the cost of financing, can be put in place. This income must be permanent and not adversely impact on the overall States' financial position.'

4. The marketvalueof the investments held bythe Strategic Reserve asat30thJune2003was £391.8 million.

I t is not possible to predict the return for the Reserve for 2003 as this will depend on movements in Bond and

Equity  Markets  and  changes  in  interest  rates  which  are  factors  outside  the  Finance  and  Economics Committee's control.