It became known that Petersburg’s local authorities adopted a new concept of financial course. The aim of the course is to break an 11-year debt cycle that has been caused by short-term loans consumption.
Such decision is welcomed by the society but still it will take too much time to put Petersburg’s financial sector in order. Much more than that should be done.
Previous financial policy
According to the new course, $750 000 should be annually put off starting from 2015. This amount of saving will help to get rid of the need for short-term financial help. It should also be mentioned that $5 million note was borrowed for the impending financial year but local authorities intend to make the amount significantly reduced to $1 million.
Specialists’ opinion is that such course should have been adopted long time ago. Petersburg financial house uses so-called “profit expectancy loans” which are loans in fact in order to get funds until the necessary amount of taxes is collected. Such borrowing is similar to using short-term personal loans and this is not the most cost-effective way out.
City’s economists and financial consultants insisted on the fact that such short-term borrowing had been financially insolvent because of huge amount of interest overpaying from 2012. These financial advisors took part in the new financial policy development together with the city’s financial house representatives.
Profit expectancy loans have been used by local authorities since 2003. $5 million was borrowed by the city last financial year and almost $70 000 of interest and $5 000 of bank charges was returned to the lender. $6 million was borrowed by the city previous financial year and almost $51 000 of interest and $5 000 of fees was returned to the lender.
The New Financial Course
The new financial course not just presupposes making savings in order to use it when needed but also suggests measures to avoid same financial traps.
Except of making $750 000 annual savings the city’s financial house has to put off 50% of annual budget balance surplus.
Creating financial source that is able to replace short-term borrowing is the first financial goal suggested by the new financial course.
The next step is making savings in the amount of 10% of the entire city’s budget. Besides, subsidies in the education system should be also made.
The amount of tax-supported debt may be covered up to 10% and debt ratio should be regularly tracked. Ten years is given to pay off the half of tax-supported debt.
If the savings fund is exhausted, local authorities should design a program that will make it possible to completely restore the fund during 1 year. Council should create the best program that will help to restore the savings fund and avoid financial difficulties.
This financial course aims to put the Petersburg city on strong financial background and it is commendable. But such measures should have been taken long time ago. Now it will take much time until the situation is fixed.